Conflict Studies Research Centre - ETH Z Profiles 3 1.1 From the Irkutsk Aviation Production...

Conflict Studies Research Centre

Russian Series

0604

The State of the Russian Aviation Industry and Export Opportunities

Eugene Kogan

Key Points

Exactly what has the management of the aviation industry done to maintain the workforce and to keep the enterprises running For major aviation companies such as Irkut Corporation RAC MIG Holding Sukhoi and its associated enterprises Mil Helicopter Plant with its associated enterprises export of military craft and helicopters was and still is the prime strategy of survival The domestic market was and still is in very bad financial shape and government promises to provide funds (via the Ministry of Defence andor the Air Force Command) have not as yet materialised As a result any figures on research and development spending in the aviation sector need to be looked at very carefully Very often they reflect the wishes of the government and the defence industry officials but they do not correspond to the bleak realities There is also an inherent disparity between official statements that state defence orders have been increasing over the last two to three years and the reality on the ground Orders backed up by real finance and not merely promised funding for a limited number of new aircraft and a slightly larger number of new helicopters may appear on the horizon by the end of 2007 to early 2008 andor later As for fifth - generation aircraft the story is a little different There is a clear understanding by Sukhoi and others that the government still doesnrsquot have the money to support the project Nevertheless the decision has been made that the project goes ahead with andor without government support There is however an additional element of uncertainty namely whether European Union member states such as for instance France Germany and possibly Italy may join the programme It is also unclear whether India will go along with it It appears that the Peoplersquos Republic of China is not interested In the engine sector the situation has stabilised and several large corporations such as Salyut Saturn and UMPO have emerged As for navigation and on - board equipment Technocomplex appears to be the leading corporation The St Petersburg based electronics firm ZAO Aerokosmicheskoye Oborudovaniye is as important as Technocomplex and it seems

that these companies have managed to survive and become successful as a result of their export policy Over the last fifteen years the total number of enterprises in the aviation sector has declined by 10 to 20 per cent from officially recorded 293-306-315 to about 240-270 and this number is likely to decline further to about 220 or less The crucial question remains how many of them are still operational and what has happened to the rest It can be suggested that between 80 and 100 enterprises are actually operational The rest have either ceased to exist or left the aviation industry altogether although they are still registered in the sector However many enterprises have been sidelined andor are hoping that with the revival of the domestic market they will return How many of them will survive through the difficult times remains unclear For instance the Saratov Aircraft Plant is currently producing consumer goods and not aircraft Samara-based Aviacor formerly manufactured Tundash154s but with the end of production it managed to get a new contract to manufacture the Anndash140 The rate of production however remains minimal and despite a new contract the future of the plant remains uncertain On the other hand the good fortune of the Sokol Aircraft Plant has so far been an exception to the rule The official number of employees 05 million has been kept on the government payroll to avoid creating unemployment The style of management differs from enterprise to enterprise Some managers have been bold enough to reshape the structure and the working style of their enterprises others remain unsure of what to do and which direction to follow Airbusrsquo financial investments in the Russian aviation industry have so far been rather modest $US3 million $US10 million $US200 million in a 10-year deal or $US20 million annually andor even a $US70 million purchase of 10 per cent stake in Irkut are not as large as Russian government officials would wish them to be It means that Airbus consider the Russian aviation sector less attractive than for instance the Chinese Government officials tend to exaggerate the importance of the Russian aviation market to the Western countries The future of a co-operative project called lsquoRussian Regional Jetrsquo remains uncertain although the governments of Russia and France have allocated funds It needs to be remembered that during these governmentsrsquo previous co-operation on the installation of French engines and avionics and the manufacture and the marketing of the MiG-AT combat trainer aircraft the Russian and French governments provided financial support however very few MiG-AT have been ordered

by the Russian Air Force So far the MiG-AT has not been exported as had been envisaged Other examples of co-operative projects highlight their limited scope because they are primarily aimed at external markets The Russian domestic market has so far been kept under tight control The military aviation sector was streamlined and has the potential to prosper in the years to come in spite of gloomy forecasts The commercial sector remains in disarray it has not been restructured in spite of the various plans that have been proposed in the last fifteen years and is likely to face a bleak future

Contents Introduction 1 1 Company Profiles 3 11 From the Irkutsk Aviation Production Organisation (IAPO) to the Irkut

Corporation 5 12 The Russian Aircraft Corporation (RAC MIG) 6 13 The Sokol Aircraft Production Plant Moving from the margin to the

centre 7 14 From the Aviation Military-Industrial Complex (AMIC) Sukhoi to

Aviation Holding Company Sukhoi 9 15 Mil helicopter producers Moving ahead and enhancing their

marketing reputation 10 2 Workforce 11 3 Financial revenue and investment 12 4 Co-operative projects 15 5 Export Opportunities 17 6 Uncertain future and pitfalls ahead 20 Appendix Profile of the current aviation industry heads 31

0604

1

The State of the Russian Aviation Industry Conflict Studies Research Centre

ISBN 1-905058-54-3 January 2006


Eugene Kogan Introduction It is important to stress that this report deals with a variety of complex issues including various aviation industry programmes about which the author has been able to obtain concrete financial data Unsatisfactory phrases such as `lack of fundingacute `lack of state fundingacute `support for albeit inadequatelyacute and `consideration is being given to more flexible fundingacute have not been cited in the report because they are not meaningful In addition statements such as for instance `France may co-operate with Russiaacute or `France will consider the possibilityacute need to be taken with a pinch of salt because of the vagueness of the language which can also be misleading The Russian press very often gives very general descriptions of what has occurred at the enterprise level since the early 1990s It does however tend to shy away from providing financial estimates and other figures On the other hand spokespeople from a variety of enterprises remain vague in their own analysis and shed very little light on how this or that enterprise has managed to survive through the difficult times Here the author also attempts to give company structures and sales figures however this is not always possible On the other hand technical characteristics and descriptions of the aircraft programmes are not cited here They can easily be found either in the open press or on the Web As regards export opportunities the author presents the current trends and attempts to chart future prospects The author does not take into consideration the so-called potential export opportunities or memoranda of understanding but deals with the contracts that have actually been signed and are being implemented In addition statements such as lsquoin principlersquo and lsquoin generalrsquo have not been considered Emphasis is given to the important role that helicopter manufacturers have played and still are playing in the business Their contribution tends to be underrated and sometimes is not considered to be as important as it actually is There is a tendency to focus just on the export of aircraft and as a result to belittle the export of helicopters Some basic data According to Prospects of the Civil Aviation in Russia1 in 2002 the aviation sector encompassed a total of 315 enterprises and research facilities 166 enterprises and 149 research facilities and design bureaus The same report cited the Accounting Office record which stated that thirty-eight facilities dealt with technologies fifty-six with scientific development sixty-eight belong to the aircraft and helicopters sector twenty-two dealt with special aviation equipment (details were not given) thirty-three dealt with engines thirty-three belonged to assembly lines while sixty-five belonged to instrument-making including navigation instruments The aviation

0604 Eugene Kogan

2

industry employed 05 million employees while an additional 15 million were employed in associated industry enterprises2 Rosaviakosmos (the Russian Aviation and Space Agency) registered 306 enterprises belonging to the aviation sector 76 are state-owned while 230 are shareholding companies Russia invested 27 million roubles (1 rouble = 2 UK pence) in 2002 and 63 million roubles in 2003 in the aviation sector and was planning to invest up to 126 million roubles in 20043 It can be suggested that although the Accounting Office record was compiled in 2002 the total number of enterprises has not changed much The author however disagrees with both sources of information and assumes that the number of enterprises has steadily declined since the early 1990s and is currently somewhere between 240 and 270 In addition between 80 and 100 enterprises are actually operational4 Employees have been kept on the government payroll in order to mitigate the so-called social unrest The average monthly wage per person in the aviation sector is about 8500 roubles5 or about $US290 It is important to note that the average monthly wage in the aviation sector has steadily increased from 5194 roubles in 2002 to 6549 roubles in 20036 and to 8500 roubles in 2004 For instance during the 1990s the engine sector of the aviation industry was receiving between 25 and 30 per cent of total investments In 2003 investment totalled 12 per cent of the overall investment while in 2004 it totalled 14 per cent7 According to Konstantin Makiyenko deputy head of the Centre for Analysis of Strategies and Technologies (CAST) although the state is currently awash with money òur bureaucrats including defence bureaucrats are incapable of managing them As a result no single programme gets enough financing to become a mass-produced productacute8 Valery Bezverkhnyy vice-president of the Scientific Production Corporation Irkut (also known as Irkut Corporation andor Irkut) claims that the government needs to increase spending on aviation from 13 per cent of the defence budget namely from $US650 million of $US5 billion in 2003 to 35 per cent over the next five years He continued Àt the present level in five years there will be nothing left but ashacute9 As far back as 2001 the aviation industryrsquos share of total arms sales was over 50 per cent production grew by 402 per cent and the joint profit was over 17 billion roubles10 In 2002 aviationrsquos share of the total arms sales from Russia was about 67 per cent at $US32 billion The same share was envisaged for 200311 Figures released by the Russian arms-trade company Rosoboronexport show that the lsquobulkrsquo of the $US5 billion was generated by the sale of combat aircraft and air-defence systems12 Until recently Russian military aircraft made up 25 per cent of global combat aircraft export trade After 2003 Russiarsquos share in this market began to decrease as a result of the conclusion of earlier contracts with the Peoplersquos Republic of China (PRC China) and India According to Viktor Khristenko Minister of Industry and Energy arms sales generated between $US2 billion and $US25 billion in annual sales for the aviation sector well short of the $US5 billion to $US6 billion envisaged The latter figures would have allowed Russia to position itself as a top aviation manufacturer Khristenko also added that as a result of low sales Russia could be out of the competition by 201013 2005 has delivered a rude awakening to the Russian aviation industry For the first time since 2000 aviationrsquos share of Russiarsquos annual $US5 billion defence exports fell from the 65 per cent of 2004 to an estimated 20 per cent14 Furthermore in 2005 for the first time in recent history Russia did not deliver a single Su aircraft New aircraft contracts are expected with Algeria Indonesia and Thailand but negotiations have been slow due to government and environmental problems in those countries15 Is aviationrsquos share likely to fall in the next three to five years Such a possibility cannot be dismissed outright and much depends on the

0604 The State of the Russian Aviation Industry

3

competitiveness of the aviation sector and Rosoboronexportrsquos efforts to look for a new market beyond China and India This issue will be discussed in Section 5 below As far back as May 2002 it was reported that US Congressional analysis suggested that the American and Russian military aviation industries shared similar pressures among them the need for continuing consolidation and the drive to sell more aircraft overseas Non-Russian research contracts in 2002 made up 32 per cent of the work of TsAGI which is the major Russian aviation research facility Only 10 per cent comes from Russian aviation companies16 It can be said that in the early 1990s the engine industry lost people and capability For instance up to 1999 the number of workers employed in the enterprises and the design bureaus decreased yearly by 10 per cent then from 2000 the number of workers increased annually by about 2 to 7 per cent17 As a result the industry has not fully recovered from the losses of the early 1990s In addition several design bureaus in the engine sector have ceased to exist As a result organisations such as the Moscow-based Salyut Machine-Building Production Organisation andor Association (also known as MMPP Salyut andor Salyut) and the Ufa Machine-Building Production Organisation (also known as UMPO) took over andor set up their own design bureaus According to Valery Bezverkhnyy `Much of the real manufacturing capability has already been lost Today the capacity is really very smallacute18 How small remains unknown It also needs to be stressed that a large number of domestic suppliers and manufacturing facilities ceased to exist because of a lack of domestic orders In order to understand fully what constitutes the current aviation industry sector we will now examine the company profiles 1 Company Profiles According to Krasnaya Zvezda the worst years for the aviation industry were the mid-1990s And yet the management of Salyut paid regular wages and as a result managed to retain the skilled workforce and the modern technological base Relying on that base management continued to search for a new ways to effectively develop their enterprise manufacture new goods and provide services for domestic and external markets Salyut which manufactures the AL-31F engine for the Su-2730 aircraft increased its defence revenue from $US180 million to $US239 million in 2001 and about the same amount was expected in 2002 The average monthly wage was 12000 roubles or about $US400 The ratio between civil and military production was and still is about half and half Over the last several years the management of Salyut has annually invested between $US50 million and $US80 million of its revenue to purchase modern equipment Without such equipment the development of the engine for the fifth-generation aircraft would not have been possible19 In addition to taking over its associated design bureau Salyut has also established an institute for higher education for its skilled workforce UMPO decided to follow the example set up by Salyut Both organisations enlisted the assistance of experts in the engine sector from well-known research facilities such as TsIAM VIAM and the Research Institute for Engines (NIID)20 Salyut earned $US239 million in defence revenue in 200121 Salyut UMPO and the Scientific Production Organisation Saturn (also known as NPO Saturn andor Saturn) earned $US907 million in 2002 and $US10424 billion in 200322 Saturn earned $US2688 million and UMPO $US3906 million respectively in 200323 Salyut earned $US3112 million while UMPO earned $US3457 million in defence revenue in 200424 In 2002 however Salyut together with the Holding Sukhoi was given a licence to provide after-sales support from which Salyut earned $US38 million in

0604 Eugene Kogan

4

2004 In addition in July 2005 Rosoboronexport signed a contract with China on behalf of Salyut to supply one hundred AL-31FN engines at a cost of $US300 million25

Another interesting example of a regenerated enterprise has been Saturn Saturn was formed by the merger of the Design Bureau Lyulka-Saturn and the series production plant Rybinskiye Motory and the shift to a single stock The President of the new structure whose company was announced in the summer of 2001 Yuri Lastochkin has been building up the corporation while overcoming the fierce resistance of minority shareholders and being surrounded by the competing engine-building plants Salyut and Permskiye Motory26

NPO Saturn proceeded with general restructuring of its design bureaursquos technical base the engineering corps was also restructured and new equipment was installed in the sections which define the effectiveness and quality of the production processes The marketing economic and financial operations have been substantially enhanced and as a result Saturn was brought up to world standards Saturn has also established long-term communications with domestic and foreign partners27 Undoubtedly the success of Saturn attracted highly qualified workers to move from the Perm-based Aviadvigatel Design Bureau to Saturn Between 1998 and 2003 more than fifty leading engineers designers and managers left Aviadvigatel to work full-time at Saturn28 The average monthly wage at Saturn was 10000 roubles or about $US330 Another important aspect is higher education Saturn pays for tuition for the children of its employees As a result it takes care of its further generation of skilled and well-educated workers29

On 16 August 2005 a contract was signed between Rosoboronexport on behalf of Saturn and Hindustan Aeronautics Limited (HAL) for licensed production of a thousand engines by the Indian firm According to Yuri Lastochkin the $US300 million deal covers the development and licensed production of AL-55I engines for Indiarsquos HJT-36 trainer aircraft30 Saturn will also deliver 240 D-30KP-2 engines for the IL-76 and IL-78 aircraft that China recently purchased from Russia and will be paid more than $US300 million According to Lastochkin this sum will be invested in the development of the company and the same money will also allow the completion of the development and beginning of serial production of a new engine for the military transporter31 According to Alexander Piontkovskiy Saturnrsquos director for Information Technologies (IT) Saturn has purchased the most advanced equipment which was distributed over four industrial sites located in Lytkarino Moscow Rybinsk and Volzhsk The corporate centre is equipped with a server that according to its production capacity is the third largest in Russia Saturn continues to purchase IT equipment and also plans to increase computer base capacity32

In addition it is worth mentioning ZAO Aerokosmicheskoye Oborudovaniye (Aerospace Equipment) which was established in 1998 and incorporated more than thirty aviation industry enterprises According to a decision by the Russian government Aerospace Equipment was named the leading supplier of military avionics for the 140 Su-30MKI that will be produced under licence in India33 In addition to India China largely remains the main customer of the company Mikhail Dmitriyev chairman of the Russian Committee on Military-Technical Co-operation (MTC or Komitet po Voyenno-Tekhnicheskomu Sotrudnichestvu (KVTS)) signed a decree granting a licence to Aerospace Equipment to provide after-sales support34 Aerospace Equipment earned $US4442 million in defence revenue in 200435


5

Technocomplex research and production centre also needs to be mentioned It was established in 1997 and brings together seventeen designers and manufacturers of aircraft on-board equipment with a total workforce of over 33000 Technocomplex has about $US1 billion on the order book for the foreseeable future but at the same time it is continuing to expand its market opportunities It has accumulated no debts and has a steady flow of orders36 For instance in 2002 Givi Djandjgava president of Technocomplex stated that the volume of sales of the centre was between $US400 million and $US450 million annually37

11 From the Irkutsk Aviation Production Organisation (IAPO) to the Irkut Corporation The best known example of a successful private company is Su-maker Irkut However it needs to be emphasised that in spite of Irkutsk Aviation Production Organisationrsquos lean times in the early 1990s it has retained its workforce and manufacturing capacity and developed new aircraft Undoubtedly the major contract with India to manufacture and deliver the Su-30MKI which was signed in 1996 was the turning point in the history of IAPO The quantity of experimental and design work was so large that IAPO had to invest more than $US200 million of its own as well as calling on external financial backing38 In 2001 with the arrival of a new management a serious shift was made in the direction of the company According to Sergei Tsivilev senior vice-president of Irkut the main task facing the management was the building of a transparent public company that could use its advantages in the market39 Such characteristics as a readiness to take risk to be responsible for its actions and to be advanced players have become the key elements of company strategy40 Alexander Sergunov chief technology officer of Irkut also noted that the company has invested $US30 million in over 250 new machines since 2001 and was expected to complete the programme with an additional two yearsrsquo investment at $US10 million a year41 No further information has been published on the completion of the programme Alexey Fedorov Director-General of Irkut noted that the company plans to increase the civil side of its business to about 50 per cent of revenue from the current less than 10 per cent adding that the most likely move is to focus on niche products such as the Be-20042

Company structure and sales Irkut Corporation (formerly IAPO) was established on 19 December 200243 It was the first Russian company to be audited to Western accounting standards44 In 1997 the then IAPO took a 40 per cent stake in the Taganrog-based Aviation Scientific and Technical Complex Beriev (also known as Beriev Complex andor Beriev) manufacturer of the Be-200 while 38 per cent was owned by the Aviation Holding Company Sukhoi (also known as Holding Sukhoi andor Sukhoi) It followed this by buying a controlling stake in the Zhukovskiy-based Russkaya Avionika (or Russian Avionics) which specialise in navigation and targeting systems In 1999 or 2000 it added the electronic design house Irkut-Aviastep45 Irkut has spent $US70 million of its $US127 million on the purchase of 7546 per cent of the Yakovlev Design Bureau46 According to Elena Fedorova press secretary of Irkut it holds 20 per cent of the Saratov Aircraft Plant Irkut received shares in the plant as a result of its acquisition of the Yakovlev Design Bureau47 The latter was one of the shareholders in the plant but the other shareholders remain unknown It appears that in early 2004 Irkut created a systems integration division and was going to offer its expertise to other Russian companies seeking to upgrade

0604 Eugene Kogan

6

military aircraft for the export market Alexey Fedorov noted that the company gained valuable experience when integrating a multinational system package on the Indian Air Forcersquos Su-30 MKI The aircraft uses equipment from suppliers including Thales of France and Elisra of Israel as well as Indian and Russian suppliers The new divisionrsquos first project was expected to be the development of an unmanned aerial vehicle (UAV) designated for para-public missions The company will base the UAVrsquos systems on the Aria 200 integrated avionics suite developed for the Be-20048

The make-up of the company shareholders is unclear there are at least two versions Irkutrsquos major shareholders include the Moscow-based finance and consulting company ZAO Kompaniya FTK (206 per cent) the Forpost Commercial Bank (206 per cent) the Holding Sukhoi (147 per cent) St Petersburg-based electronics firm ZAO Aerokosmicheskoye Oborudovaniye (1018 per cent) and the Moscow-based ZAO Brunswick UBS Warburg Nominees (nominal holder 2576 per cent) Other corporate shareholders own 49 per cent and individuals 355 per cent of the shares49 However according to Defense News Irkut which before the initial public offering (IPO) (on 26 March 2004) was 70 per cent controlled by its ten top managers has seen this stake decline to 503 per cent while the governmentrsquos 147 per cent was reduced to 134 per cent Of the 23 per cent offered on the market between 12 per cent and 15 per cent ended up in the hands of foreign investors50

IAPO sales in 2000 were 516 billion roubles of which 495 billion were exported51 Defense News in its annual grading of the top 100 defence companies noted that IAPO was ranked 92nd in 2001 and earned $US2307 million in defence revenue52 According to the 2003 ranking Irkut was placed 58th in 2002 and earned $US5058 million Irkut was 77th in 2003 and earned $US4684 million53 Finally in the latest ranking Irkut was placed 66th in 2004 earning $US6245 million54

It is also known that in May 2004 Irkut had a $US45 billion order book55 Airbus has signed a $US200 million 10-year deal with Irkut for the supply of parts for its A320 family craft56

The European Aeronautic Defence and Space Company (EADS) and Irkut have declared their intention for EADS to take about a 10 per cent stake in Irkut As a result EADS would receive a non-executive position on the Irkut board of directors57 Irkut has for the first time named five independent directors to its eleven-man board The six other members are senior executives at Irkut and its affiliates now including Oleg Demchenko Director-General of the Yakovlev design bureau58

Beriev Complex On 4 July 2003 the newly elected board of directors of Beriev Complex met for the first time Deputy Director-General Victor Kobzev presented a plan for the strategic development of the complex The main aim is to maintain its special niche manufacturing position and to obtain the leading global position as a designer of amphibious hydro- and naval craft for civil and military purposes To realise this ambition they are to form a balanced portfolio order fully computerise engineering tasks recruit younger workers but at the same time to retain the key technical experts and finally invest funds in the abilities of highly qualified workers59

12 The Russian Aircraft Corporation (RAC) MIG A less successful story is that of the RSK MIG (the Russian Aircraft Corporation MIG) which was established in December 1999 Between 1994 and December 1998


7

the company was called VPK (Voyenno-Promyshlennyy KompleksMilitary Industrial Complex) MIG The company amassed heavy debts to the government banks (or perhaps the Ministry of Finance) that supported the production Despite severe financial constraints Nikolai Nikitin Director-General of MIG oversaw the reinvestment of export revenues in research and development and the construction of a modern assembly shop at MiGrsquos manufacturing facilities in Lukhovitsy a small town situated near Moscow He also managed the diversification of MiGrsquos military business by arranging the production of the Tu-334 commercial craft60 Nikitin was dismissed in early November 2003 and replaced by Valery Toryanin Toryanin as the Director-General of the RAC MIG managed to reduce the debt to between $US300 million and $US500 million from $US1 billion but still failed to come to an agreement with the creditors and investors on additional credits 61 Toryanin was dismissed in late September 2004 and replaced by Alexey Fedorov According to Fedorov lsquoMIG is in debt but the situation is not criticalrsquo He added that the company has a plan to improve its financial health upgrade its facilities and negotiate with the Russian government to eliminate the nearly $US300 million debt that it inherited from its previous management62

In 2001 the company signed $US1 billion worth of contracts for thirty-six MiG-29s and in 2002 delivered $US370 million worth of craft63 In 2002 it delivered $US350 million worth of craft64 The company earned $US190 million in 200365 Defense News in its annual grading of the top one hundred defence companies noted that RAC MIG was ranked 88th and earned $US403 million in defence revenues in 200466 According to Alexey Fedorov the company currently has orders worth more than $US1 billion67

In October 2005 the company launched a programme of management restructuring The programme envisages reducing the administrative staff by 40 per cent by the end of 2005 The financial savings gained from the redundancy programme would be allocated to raising the wages of qualified employees and enhancing the capabilities of the MIG Engineering Centre (also known as the MIG Design Bureau) The redundancy programme is directly linked to the market expansion of the companyrsquos products and the design of new aircraft technology68 The strong engineering centre was led by Vladimir Barkovskiy since 1999 In addition the company owns a very expensive property where the engineering centre was located for many years The sale of this could bring in a substantial income which is likely to be much greater than the current and potential contracts for MiG-29s and Su-30s69

In June 2004 the company average monthly wage was 10500 roubles The company envisaged raising this to about 11500-12000 roubles by late 200470 Whether it has managed to do this is unknown What is known however is that since 2002 the company average monthly wage has steadily increased RAC MIG holds 49 per cent of the Kamov Helicopter Plant the remaining 51 per cent is owned by the Moscow-based AFK Sistema a private financial and industrial group71 AFK Sistema formed Holding Kamov which was the marketing company since 2004 Holding Kamovrsquos primary function is to market the Ka-32 and Ka-226 helicopters72

13 The Sokol Aircraft Production Plant (Sokol) Moving from the margin to the centre According to Vasily Pankov Director-General of the Nizhniy Novgorod based Sokol Aircraft Production Plant in 2001 for the first time in several years Sokol made

0604 Eugene Kogan

8

income of 170 million roubles ($US56 million) following losses by the company of 15 million roubles (about $US500000) in 2000 and 86 million roubles ($US28 million) in 199973 In 2004 Sokol earned 25 billion roubles in revenue while net loss was 70 million roubles74

Pankov noted that when he was appointed Director-General of the plant in 1998 the MiG-21 upgrade order from India was the plantrsquos only business Furthermore the order has generated relatively little income andor development for the plant given that the plantrsquos added value was very small and the major value of the order accrued was by VPK MIG which was responsible for the design Finding this situation to be both inequitable and slow Pankov set up Sokolrsquos own design capability and then sought to act as co-ordinator of the inputs from the aircraftrsquos designer the providers of avionics and other on-board systems including Phazatron in addition to Rosvooruzheniye (forerunner of Rosoboronexport)75 However unlike Alexey Fedorov Pankov either did not want to or was unable to acquire a controlling block of shares in his enterprise and he failed to invest money in the research and development of an analogue to the Su-30MKI fighter in the light fighter class ndash the multifunctional MiG-29UBT complex with the Osa phased array radar76

Pankov also noted that the involvement in the plantrsquos activities of the plantrsquos controlling shareholder the Kaskol Group brought a new contract for parts of the fuselage and empennage of the Aermacchirsquos basic trainer the SF-260 Although the order was small it involved both the training of over 100 Sokol workers in Italy and the certification of a number of Sokolrsquos production facilities by the Italians following favourable reports by the Federal Aviation Authority (FAA) in 199677 On 21 May 2001 Airbus signed a deal with the Kaskol Group on behalf of Sokol to develop A318 A340 and A380 parts production78 There have been reports that Airbus signed its first supplier contract with the Kaskol Group in late December 2003 (this information is not correct) Under the terms of the agreement Sokol and Irkut will manufacture 300 sets of floor grids for the fuselage section 1314 of the A320 family through to 200879 Under the January 2004 deal with India for the Admiral Gorshkov aircraft carrier Sokol was contracted to build sixteen MiG-29K aircraft for $US730 million80 Sokol also manufacture the Yak-130 combat trainer aircraft for the Russian Federation Air Force (RFAF) In 2005 the RFAF and Sokol signed a contract for Sokol to supply twelve craft between 2006 and 200781 It remains unclear however whether the RFAF have paid in advance for the craft or the company will receive payment on delivery A meeting of the shareholders of the Sokol Aircraft Production Plant took place on 3 June 2005 A new board of directors was appointed including eleven members It is important to emphasise that four of the eleven members represent RAC MIG one the Irkut Corporation one the Sokol plant three members the state one the banking sector and one the shareholder of the plant the Kaskol Group Alexey Fedorov has been appointed chairman of the Board of Directors As a result it can be stated that Sokol which until recently has been sidelined from consolidation of the aviation industry will be directly involved in consolidation of the companies and enterprises around Irkut82 The state (probably the Ministry of State Property Minimushchetvo) has a 38 per cent stake in Sokol while about 50 per cent belongs to the Kaskol Group83


9

14 From the Aviation Military-Industrial Complex (AMIC) Sukhoi to Aviation Holding Company Sukhoi The Aviation Military-Industrial Complex Sukhoi declared that in 2001 its revenue exceeded $US2 billion The exact figures at the time of publication are not known84 Since the formation of AMIC Sukhoi the average monthly wage in Komsomolsk-on-Amur Aviation Production Organisation (KNAAPO) (one of its associated facilities) has increased from 5000 roubles to about 10000 roubles At KNAAPO the powerful Engineering Centre was created85 It needs to be stressed that since December 1992 KNAAPO has been exporting Su-30 fighters to China Recently KNAAPO has also received orders from Indonesia and Vietnam This enabled KNAAPO to weather the financial difficulties unlike some other aviation organisations Although in 2004 and 2005 KNAAPO upgraded the Su-27 for the Russian Federation Air Force the Air Force has not paid for the work which has been valued at one billion roubles86 Company structure and sales The government approved the creation of the Aviation Holding Company Sukhoi (formerly AMIC Sukhoi) in November 2003 The holding would have a 50 per cent stake in the Sukhoi Design Bureau a 745 per cent stake in KNAAPO and Novosibirsk Aviation Production Organisation (NAPO) 38 per cent in Beriev and 147 per cent in Irkut Corporation There are nine members of the company board including Yuri Koptev the chairman and Mikhail Pogosyan the chief executive87

The Sukhoi Design Bureau established the Centre for Logistic Support which takes care of after-sales support As a result for the first time in its history the bureau performed as an independent authority and provided after-sales support of $US110 million in 200388 Janersquos Defence Weekly reported that Holding Sukhoi earnings from after-sales support in 2004 amounted to $US132 million compared with $US14 million in 2003 (though this sum was not correct see note 89) In 2005 the company expects to earn more than $US150 million According to Mikhail Pogosyan Ìn its foreign economic operations with the supply of spare parts and provision of maintenance Sukhoi seeks to reach $US200 million a yearacute89 In addition in early 2000 AMIC Sukhoi established the Sukhoi Civil Aircraft (SCAC) subsidiary which is tasked with the design and development of the Russian Regional Jet (RRJ) Currently the company generates more than 90 per cent of its revenue through sales and research and development in the military sector However by 2015 it aims to generate between 30 and 35 per cent from the civil sector with a further 10 per cent from after-sales support The remaining 55 to 60 per cent would come from the combat aircraft market and from research and development revenue90

Defense News in its annual grading of the top one hundred defence companies noted that the company was ranked 24th in 2001 and earned $US1522 billion in defence revenue91 One year later the company was ranked 38th and had reached $US988 million in defence revenue92 In 2003 the company was ranked 29th and had reached $US1425 billion in defence revenue93 Most recently the company was ranked 34th in 2004 and reached $US1469 billion in defence revenue94

According to Alexander Grushevski director for Information Technologies of the Holding Sukhoi NAPO plans to establish a modern computer and engineering centre95 In early July 2003 AMIC Sukhoi signed a support and spares contract on behalf of NAPO with Algeria for the maintenance of Algeriarsquos Su-24 strike aircraft96

0604 Eugene Kogan

10

It appears that Holding Sukhoi has been ready to invest an undisclosed sum of money in NAPO in order to maintain the plantrsquos activities The relatively small production of the modernised Su-24s and its replacement Su-34s have not yet been paid for by the Ministry of Defence (MoD) andor the Air Force Command It can be suggested that Sukhoi has been playing a risky game with NAPO by financially supporting the plantrsquos activities and hoping that the MoD andor the Air Force Command would pay for the work rather sooner than later Whether this gamble will pay off remains to be seen The plantrsquos production of the An-38 has been very small so small in number that even Russian sources have difficulty in counting them97

Ilyushin Corporation in the making In accordance with a government decree in February 2004 the merger began of the Intergovernmental Ilyushin Aviation Complex with the Voronezh Aviation Production Organisation (also known as VASO) and Ilyushin Aviation Complex Victor Livanov Director-General of the Ilyushin Aviation Complex noted that creation of the Ilyushin Corporation will be completed in the first quarter of 200698

Tupolev Joint Stock Company (JSC) On 6 December 2002 Igor Karavayev was appointed Director-General of the Tupolev Joint Stock Company Tupolev JSC currently holds 44 per cent of the Tupolev design bureau 44 per cent of the Ulyanovsk-based plant Agregat 44 per cent of the Taganrog-based Taganrog Aviation (Tavia) and 49 per cent of the Samara-based holding company Aviacor99 On 28 January 2003 Ilya Klebanov then Minister for Industry and Science was appointed chairman of the Board of Directors The Ministry of State Property holds 51 per cent while the Gosinkor (the State Investment Corporation) holds 408 per cent100 As for the remaining 82 per cent it is not known who holds them 15 Mil helicopter producers Moving ahead and enhancing their marketing reputation Mil helicopter producers comprise the Kazan Helicopter Plant (also known as KVZ) Mil Helicopter Plant (also known as MVZ) Rostvertol and Ulan-Ude Aviation Plant (also known as UUAZ)101 Compared with aircraft manufacturers helicopter manufacturers have been and still are more successful with sales of both civilian and military helicopters worldwide Company structure and sales Between 1994 and 2000 Russiarsquos largest helicopter manufacturer Kazan Helicopter Plant earned up to $US11 billion and is looking for sales of up to $US3 billion by the end of 2010102 The Republic of Tatarstan holds 2992 per cent of KVZ103

The Moscow-based Mil Helicopter Plant is publicly owned ndash 31 per cent of its shares belong to the state 30 per cent to Mezhregionalrsquonyy Investitsionnyy Bank (MIB Interregional Investment Bank) 13 per cent to Rostvertol and 96 per cent to United Technologies104

In 2001 MVZ earned about $US130 million105 Since April 2001 when MVZ emerged from bankruptcy turnover has more than tripled (the sum remains unknown) and income in 2002 rose from $US17 million to $US35 million According to Yuri Andrianov Milrsquos Director-General with help from Rosoboronexport Mil has restored developerrsquos intellectual rights on the Mil brand and taken an aggressive stance on unauthorised repairs and upgrades As a result


11

Andrianov said `Mil acts as the main developer for any changes on Mil helicopters and carries responsibility for the whole cycle of testing and certificationacute106 The net revenue in 2004 increased by 3 million roubles over the previous year and is well above 115 million roubles The volume of financial receipts has steadily increased For instance in 2003 it was 923 million roubles while in 2004 it increased to 1012 billion roubles and the forecast for 2005 stood at 1260 billion roubles107 Mil helicopter producers are expected to rake in $US500 million in revenues in 2005 and that figure is expected to gradually grow108

The biggest shareholder in Rostvertol is the Rossiiskiy Credit Bank (116 per cent) with remaining shares distributed between management and staff On 5 March 2004 the Ministry of State Property acquired a 36 per cent stake109

The Ministry of Economic Development has named Ulan-Ude Aviation Plant as the best aviation exporter for two years in succession and various rating agencies have repeatedly acknowledged Ulan-Ude to be one of the most dynamically developing Russian companies110 In 2001 UUAZ earned $US885 million111 In 2003 the annual wage of an employee was 107300 roubles112 or 8491 roubles per month The State holds 49 per cent while Rosoboronexport holds an additional 14 per cent113

2 Workforce Kazan Technical University based in the Republic of Tatarstan has helped retrain aviation industryrsquos skilled workforce It has also set up branches in aviation industry enterprises situated in the Republic114

Irkut claims that the 22000-employee enterprise has productivity levels three times the average in the sector115

Beriev Complex employs 2500 people116

The Sukhoi Design Bureau succeeded in preserving the backbone of its design bureau numbering at about 5000 staff117 According to Victor Subbotin SCAC Director-General more than 1200 people have been working full-time on the RRJrsquos airframe and systems including eight hundred (authorrsquos emphasis) full-time employees of SCAC 118 NAPO employs 6000 workers119

KNAAPO employed 19460 workers in 2004120

RAC MIG comprises fourteen different enterprises It has a total of 60000 employees The so-called brain of the corporation was and still is the MIG Engineering Centre121 According to Nikolai Nikitin Director-General of RAC MIG this company alone has 14000 employees while the rest of the corporationrsquos enterprises have over 40000122 or to be more precise 46000 employees In 2003 the Sokol Aircraft Production Plant reduced its overall workforce by 1121123 According to a Russian source Sokol employed 10000 workers in 2003124 it can be said that after the lay offs 8879 were still employed at the plant Salyut employed 14190 workers while UMPO employed 3690 in 2004125

0604 Eugene Kogan

12

Saturn employs 18000 workers while 2000 work in the Moscow-based Scientific Technical Centre Lyulko and Lytkarino Machine-Building Plant located near Moscow The rest are employed in Rybinsk on two industrial sites and at the design bureau 7000 are engaged directly in design and development of engines Every year Saturn takes in between 150 and 170 graduates and as a result remains one of the very few top engine-developing facilities in the Russian Federation The average age of the company workforce is 43 Furthermore about 3000 employees are under 30 and further on 5000 are under 40126

According to another source between 1999 and 2003 the average age of employees in the aviation sector has been steady at 45 years In addition the number aged between 40 and 49 has remained constant at about 30 per cent of the total in the sector The number over 30 has slightly increased from 1288 per cent in 1999 to 177 per cent in 2003 while the 50-59 age group has also slightly increased from 2344 per cent in 1999 to 2753 per cent in 2003127 As a result it can be said that the aviation industry compared with the other sectors of the defence industry was and still is attractive to younger people relatively well-paid and not least important the average age is below for instance that of the armoured industry which is 54 and over There is a certain dynamism associated with the aviation industry and undoubtedly their export opportunities directly affect the monthly wages and increase the motivation of the employees As a result it can also be suggested that the average age of 45 can be sustained in the next three to five years at least 3 Financial revenue and investment Aircraft and engines Be-200 The management of Irkut claims to have invested the equivalent of $US265 million in the craft to date128 It remains unclear whether this amount includes research and development costs IL-112 The Ilyushin Aviation Complex was selected to meet the Russian Federation Air Forcersquos requirement for a next-generation airlifter Development of the project was included in Russian President Vladimir Putinrsquos 2002-10 armament programme and state funding has been allocated starting from 2004129 According to Victor Livanov Director-General of the Ilyushin Aviation Complex the state funding allocated for the project is insufficient and as a result the Ilyushin Complex had to invest its own funds in the project130 The size of financial investment remains unknown IL-214 This project is financed by the companies directly involved and not by the government The aircraft is being developed under the designation Multi-role Transport Aircraft (MTA) as a joint venture of Hindustan Aeronautics Ltd of India (50 per cent) Irkut Corporation (40 per cent) and the Ilyushin Aviation Complex (10 per cent) The fourth partner Rosoboronexport has not invested any money but is needed by Irkut and Ilyushin who have no licence for independent contacts with foreign partners The supporters of the IL-214 have not asked for state money and do not depend on it The Russo-Indian MTA programme is the first in Russiarsquos history to be carried out with a foreign partner The cost of the research and development was estimated in the Russo-Indian business plan at $US352 million131 In the coming months the


13

Russian participants will evaluate a new work scheme financing and the business plan proposed by the Indian partners132

MiG-AT As far back as March 2002 it was reported that the French government lent euro58 million ($US51 million) to Snecma and Thales to help the French companies fund their share in the construction of a pre-series of fifteen MiG-AT in conjunction with RAC MIG The report also noted that the project had then stalled because of the Russian governmentrsquos inability to pay its share which amounted to about euro100 million The rest of the funding (the sum has not been cited) is to come from Russian industry133 There has been no information released since then on the financial state of the project Su-27SM The Air Force has ordered the upgrade of the Su-27 known as the Su-27SM Funding for the upgrade was however provided from the income that the AMIC Sukhoi generated from fighter exports134 According to Mikhail Pogosyan within the framework of the state order in 2006 funding allocated for the aircraft upgrade programme will increase by 250 per cent135 What this actually means in real figures the source does not say AL-41F engine According to Yuri Chepkin director of the Saturn Moscow Centre the research and development costs on the variable cycle thrust-vectoring engine have totalled $US15 billion since the early 1980s and $US300 million is required to complete the effort136 According to Mikhail Kuzmenko chief designer and technical director at Saturn Saturn and UMPO have invested about one billion roubles of their own money to produce five prototypes137

Su-30MK Fedorov said that Irkut will continue to work on the Su-30MK The company has already invested $US280 million in the fighter aircraft and will invest $US70 million more138

Su-30MKI Su-30MKI research and development has cost about $US400 million provided by IAPO and AMIC Sukhoi139

Su-34 (formerly Su-27IB) According to Mikhail Pogosyan Director General of Sukhoi funding for the purchase of the Su-34 was allocated in Russian President Vladimir Putinrsquos 2002-10 armament programme140 As for the amount of funding the source did not say T-50 ndash fifth-generation aircraft Mikhail Pogosyan noted in summer 2005 that the design bureau had already spent about $US100 million of its own funds on the project He also added that the government is promising to boost the fifth-generation aircraft funding in 2006 but has not provided details141 It appears that the issue of the perennial lack of financial support for the design and development of the fifth-generation fighter finally drove Russia to the European Union Mikhail Pogosyan has invited European companies to participate in developing this fighter aircraft for the Russian Federation Air Force142 As for the participation of India in such an undertaking there have been a large number of reports suggesting this but also suggesting perhaps not now

0604 Eugene Kogan

14

Tu-160 In January 2002 the Kazan Aircraft Production Organisation (KAPO) has received a contract to upgrade the Russian Federation Air Forcersquos fifteen Tu-160 Blackjack bombers (the source did not provide any details as to the value of the contract) The Tupolev Design Bureau stated in January 2002 that the Tu-160s could stay in service until 2030 by when a new strategic aircraft should be ready In 2001 Air Force officials stated that the Ministry of Defence had funded research and development for such an aircraft143 The amount of funding that has been allocated for the project remains unknown Yak-130 The total cost of research and development including the construction and testing of four pre-production aircraft has been estimated at $US200 million Up to 2002 84 per cent of the programme costs have been borne by the Yakovlev design bureau with the rest of the funds coming from the state budget144 The management of Irkut which took over the Yakovlev design bureau in April 2004 noted that research and development funding for the Yak-130 has so far exceeded $US100 million145

Helicopters Ansat Kazan Helicopter Plant has invested $US80 million in developing the Ansat a light twin-turbine multipurpose helicopter146 In the second half of 2002 the Russian Ministry of Defence and Kazan Helicopters signed a contract for the development of a military training version of the Ansat147 named the Ansat-U First state funding (how much is unknown) was provided in early 2004 for the Air Force to acquire an initial batch of the aircraft under an allocation in Russiarsquos 2005 defence budget The development programme has so far totalled 500 million roubles ($US17 million) with a further 100 million roubles ($US34 million) required to complete certification activities148

Ka-226 Russiarsquos Ministry for Emergencies (also known as MChS) has been funding the project to develop the Ka-226149 In addition the Bashkorstan budget provided the funding for assembly of the first helicopter in December 2004150 As for the overall investment no information is available Mi-28N Rostvertol intends to finance the pre-production of the Mi-28N all-weather attack helicopter from funds raised by a partial share sale The share sale was approved by shareholders on 5 March 2004 The Ministry of State Property acquired a 36 per cent stake estimated to be worth $21 million The company has already made a significant investment in the programme (how much is unknown) to cover the Air Forcersquos inability to adequately support the Mi-28N151 In addition in 2004 the Ministry of Defence spend several hundred million roubles (the exact amount is a state secret)152

Mi-38 Alexander Lavrentiev Director-General of Kazan Helicopters said that $US500 million has been invested in the Mi-38 helicopter (a replacement for the Mi-817 Hip) with the Russians bound to pledge an extra $US100 million for more prototypes153 He also noted that participants provided between $US700 million and $US800 million however this amount will be exceeded Half of the total sum has


15

been already spent KVZ invested about $US125 million in the Mi-38 project and this investment will be repaid after sales of between 80 to 90 helicopters after 2015154

To conclude the companies have so far invested their own funds in the design and manufacture of aircraft and helicopters As long as they continue to earn money from exports they will continue to invest The governmentrsquos share of the funding remains minimal and it is suggested that this will remain so for the next three to five years Unmanned aerial vehicles CAST in its by-monthly journal Eksport Vooruzhenii reported the merger of Irkut and the Yakovlev Design Bureau Irkutrsquos purchase of this design bureau provides Irkut with a solid base to diversify its overall programmes The Yakovlev design bureau in addition to developing the Yak-130 combat trainer aircraft is well-known for the design and development of unmanned aerial vehicles Irkut is very interested in penetrating the UAV sector of the market155 This is the fastest growing sector in the global military market As has been reported above Irkut has created a new division It remains unclear however how much money was invested in the creation of this division although it is evident that the development and manufacture of UAV is becoming a very important current trend in Russia A defence industry source said that the Russian MoD had `finally paid attentionacute to the increased UAV developments by foreign designers and was likely to fund the Yakovlev design bureaursquos research work156

According to Internet sources the Kamov design bureau first flew an unmanned helicopter the Ka-37 in 1993 after developing it with their own funds157

The MVZ chief designer Alexei Samusenko said that the prototype of Milrsquos first unmanned helicopter may be built in 2006 if the companyrsquos directors approve funds required for its development He also said that up to now the company has been investing its own money in the programme but he refused to specify how much158

Irkut so far has used its own funds to develop the UAVs All the designers lament the lack of orders from the Air Force and that they have to spend their own money on research and development159

To conclude it remains unknown how much money (not even approximately) has been allocated for the task since Russian open sources have not by and large disclosed such information Furthermore the companies themselves consider such information classified 4 Co-operative projects With its well-educated and highly skilled workforce the Russian aerospace industry is in an ideal position to contribute to join ventures with western companies and will play a role in the global market in the future160

For instance Dassault Aviation and AMIC Sukhoi have signed a broad-ranging agreement as European and Russian firms continue to reinforce co-operative ties Under a preliminary agreement signed on 20 June 2003 the two companies decided to form a working group to explore how they could collaborate on combat and civil aircraft as well as unmanned aerial vehicles unmanned combat aerial vehicles

0604 Eugene Kogan

16

(UCAVs) and supersonic business aircraft applications Dassault officials stressed however that the focus of collaboration with Sukhoi at least initially would be on contributing know-how rather than on joint programmes161 Furthermore it is important to stress that as Alexey Poveshenko an adviser to Mikhail Pogosyan noted the companies cannot act until they receive clearance from the two governments162 A source in the Russian aerospace industry said that there has been little progress between Sukhoi and EADS due to government hurdles about exchanging sensitive information As far back as September 2002 it was reported that EADS and the then IAPO were studying the feasibility of jointly producing and marketing the Be-200163 One year later EADS and a newly created Irkut were planning to change their co-operation deal with Rolls-Royce Deutschland to develop a Westernised Be-200 fire-fighter into a legal joint venture At that time the two companies decided to create a single marketing and sales organisation before seeking European approval164 However in late December 2004 the three companies were considering terminating their joint effort to develop a Rolls-Royce Deutschland BR715-powered version of the Be-200 According to Alexey Fedorov Òur EADS colleagues appear to be ready to stay with the project even if Rolls-Royce decides to leave itacute 165 Finally on 16 August 2005 during the MAKS 2005 air show EADS and Irkut (without Rolls-Royce) signed an agreement to establish a joint venture to market the Be-200 The new company will be named EADS Irkut Seaplane SAS The deal calls for Irkut to have 70 per cent and EADS 30 per cent of the joint venture The new company will be led by a German ndash Johannes Falke former managing director of the Manching-based MiG Aircraft Production Support166

In an extension of a previous accord signed in 2004 EADS Test and Services and Beta Air will jointly develop and market test systems and services based on Beta Airrsquos ATE-200 and EADSrsquos ATEC Series 6 to airlines in Russia and the Commonwealth of Independent States (CIS) who are increasingly turning to Western-built aircraft167

In an interview with Defense News Alexey Fedorov noted that Irkut has been looking at the opportunity for an industrial partnership with Eurocopter This would involve some licensed assembly of Eurocopter products in Russia with further transfers to manufacturer components168 During the ILA air show in Berlin on 11 May 2004 EADS signed a strategic agreement with Irkut which involves Irkut servicing helicopters built by Eurocopter that are operated in Russia Irkut and Eurocopter continue negotiations to create a joint venture that may include the assembly of Eurocopter products in Russia169 There has been no further information on the subject of a joint venture since May 2004 As long ago as June 2003 Givi Djandjgava said that Technocomplex had reached agreement with Thales and Sagem Deacutefense Seacutecuriteacute (also known as Sagem) on the joint development of future navigation and display systems for use on fifth-generation fighters as well as the use of French sensors in new electro-optical systems helmet-mounted sights and night-vision goggles170

Major US and Russian simulator companies and the Russian governmentrsquos largest aeronautical research and development organisation have teamed up to build a new and varied line of simulators for civil and military aircraft and helicopters Under the deal Evans and Sutherland (EampS) of Salt Lake City teams up with TsAGI Evans and Sutherland has also signed with the Penza-based Penza Simulation Company171 The first product of these agreements is a joint venture to provide a


17

Mi-8MTV helicopter simulator to be operated by the St Petersburg Aviation Repair Company (SPARC)172

The Ekaterinburg-based Urals Optical Mechanical Plant (UOMZ) has signed a three year co-operation programme with its Malaysian partner Malaysian Trans-national Trading Corporation Berhad (MATTRA) In the framework of this programme UOMZ will provide for the maintenance of optico-electronic systems (also known as optronic systems andor OES) of the Royal Malaysian Air Forcersquos MiG-29 fighters173

Sometime in the summer of 2004 Saturn and Snecma Moteurs established a joint venture PowerJet which will power Sukhoirsquos 60 to 95-seat Russian Regional Jet174 PowerJetrsquos prime task is to co-ordinate the development marketing sales and support of the SaM-146 engines175 On 14 October 2005 the same companies inaugurated a new joint venture VolgAero to manufacture SaM-146 engines176

Sagem Deacutefense Seacutecuriteacute part of the Paris-based Safran Group and RAC MIG signed an agreement at the Paris Air Show in June 2005 that outlines areas of co-operation in avionics for future export versions of MiG fighters177

During the 7th Moscow International Aviation and Space Show MAKS 2005 EADS signed an agreement with RAC MIG to develop military technology A company source said it will focus on the development of unmanned combat aerial vehicles178

On 18 August 2005 Finmeccanica units Alenia Aeronautica and Aermacchi announced co-operation deals with Irkut covering trainer aircraft unmanned aerial vehicles and civil aircraft engineering179 It should be underlined that the agreement on co-operation on UAVs is at a very early stage and still needs political acceptance at a much higher level Although ministers of defence of both countries met in Moscow in November 2005180 no agreement has yet been reached One of the very few co-operative projects between Russia and Belarus has been the co-operation between the Moscow-based aircraft interior designer producer Kvand and the Belarus Indela Laboratory on an adventurous UAV design including a fixed-wing vertical take-off and landing variant181

To conclude although the extent of the projects is certainly large they are mainly aimed at export markets The Russian domestic aviation market is for the time being off limits to foreign aviation companies Co-operation between the former republics of the Soviet Union has been so far very limited and it appears that in the future such co-operation is unlikely to expand This is partly because most excluding Belarus Georgia Ukraine and Uzbekistan possess no extensive aviation industry infrastructure and partly because many have already turned away from co-operation with Russia or are slowly doing so 5 Export Opportunities It is important to stress that export opportunities provide Russia with the chance to repay debts to countries such as the Czech Republic Slovakia and South Korea Undoubtedly the best promotion for the Russian-built aircraft was and still is an air-to-air exercise For instance in February 2004 such an exercise was staged between the United States Air Force (USAF) F-15Cs and Indian Air Force Su-30MKs Although details of the engagement are classified it has been evident that a poor performance by the F-15C has shaken the Air Forcersquos fighter pilot community

0604 Eugene Kogan

18

Service leaders have claimed that US-trained pilots in Sukhoi fighters usually defeat similar pilots in F-15s and F-16s but they now appear concerned that they have lost advantages in training and equipment182 Six Su-30K aircraft of the Indian Air Force took part in the `Garuda IIacute exercise from 15 June to 1 July 2005 French pilots used the exercise to assess the `threat-benchmarkacute of the Su-30 One Mirage pilot said that Ìn close combat the Mirage 2000-5 [appears] more ldquonervousrdquo than the Sukhoi A decision must be achieved in the first minute or the sheer power and the agility of the Su-30 will overwhelm youacute183

It appears that after years of the Soviet and present Russian governmentrsquos monopoly of the Indian defence market the current government and the officials of the defence industry realised that the monopoly may be short-lived As a result Russia is fortifying itself to face competition in the Indian defence market from US rivals that are savvy about after-sales service To improve its image in that sector Russia is launching a joint venture in Mumbai called Rosoboronservice India Limited (RIL) to provide after-sales warranty work on Russian naval and Air Force equipment As well as India the company also expects to serve Russian equipment buyers in Indonesia Malaysia and Sri Lanka184

Undoubtedly countries such as Indonesia Malaysia and Vietnam will continue to purchase Russian-built aircraft but they cannot under any circumstances replace Russiarsquos major customers China and India Even though Thailand and Russia concluded their first bilateral agreement on military co-operation in late October 2003 the author is not convinced that Thailand will purchase military craft from Russia More words than deeds have come from the government of Thailand Two reports published on 19 and 20 December 2005 contradicted each other The first report published in the Moscow Times claimed that Russia has signed a preliminary agreement to sell a dozen Su fighters to Thailand185 The next day Thailand denied the report Thai Prime Minister Thaksin Shinawatra told reporters that Ìt is just a discussion we have not agreed on anythingacute186 On the other hand the Philippines in about 2011 may consider purchasing the MiG-29 As a result RAC MIG will have to work out a long-term plan of how to keep the Philippines interested in purchasing the aircraft In addition Peru may consider upgrading and perhaps also purchasing additional MiG-29s Although Brazil has formally terminated its six year effort to purchase twelve new fighters187 it does not mean that in the future the effort will not be revived For instance in 1998 following the economic crisis in Southeast Asia Indonesia postponed its decision to purchase the Su-30 from Russia but later in April 2003 it decided to purchase the craft A rather similar turn of events may occur with Brazil in the next three to five years Besides these two countries no other Latin American countries are likely to purchase Russian-built aircraft For instance Venezuela has been playing with the idea but again more words than deeds have come from that government Another market for the MiG-29 is likely to be countries situated in the African continent but and that point needs to be stressed their purchases will be small in quantity and their payment in hard currency will stretch over several years Janersquos Defence Weekly reported recently that Russia and Iran had concluded a deal to upgrade the Iranian fleet of MiG-29 and Su-24188

Although export opportunities from Russia tend to be associated with foreign countries the republics of the former Soviet Union should not be forgotten It can be suggested that the market opportunities in these countries are not as great and the revenues are not as large as for instance in China and India but they


19

nevertheless remain important as a result of their political affiliations with Russia For instance the Kazakhstan Air Force has recently received four upgraded Mi-24s from Rostvertol According to an official of the Kazakh MoD the country paid $US373 million for the work According to the Deputy Minister of Defence the Kazakh Air Force has about fifty Mi-24s all of them require repairs and upgrades In 2006 a further five helicopters will be repaired andor upgraded189 In late 2002 or early 2003 the Belarussian 558th Aviation Repair Plant (also known as 558 ARZ) based in Baranovichi in conjunction with the UUAZ-based firm Shturmoviki Sukhogo carried out a `deep modernisationacute programme of the Su-25 It appears that the 558th ARZ has carried out its own upgrade of the MiG-29190 There is however no information available with regard to the upgrade of the Su-27 Armenia recently took delivery of ten new Su fighters to update its Air Force191 Oleksiy Melnyk First Deputy Minister of Defence of Ukraine stated that `With respect to modernisation and upgrades the ministry is looking at multiyear programmes that will result in extending airframe life span and improving fire-control radar systems [and] Western avionics upgrades and engine upgradesacute192 Ukrainian MoD and defence industry sources have informed Janersquos Defence Weekly that there are negotiations under way with a number of potential Western [and not Russian] aerospace industry partners including companies from France Israel and the US For the time being only one of the former members of the Warsaw Treaty Organisation Slovakia has agreed to accept the RAC MIG conditions for the countryrsquos MiG-29 upgrade Since Russia owed a debt to Slovakia dating back to before 1989 part of this debt namely about Kcs16 billion ($US466 million) was allocated to the Slovak MoD193 On 21 June 2004 the Slovak Air Force commander Jozef Dunaj announced that a contract had been signed with RAC MIG to update 12 of the Slovak 21 MiG-29s In February 2004 it was agreed that payment for the $US43 million contract would be offset against Russiarsquos debt to Slovakia194 Finally in June 2005 the RAC MIG selected Western subcontractors for the upgrade The Western subcontractorsrsquo share of the work is 10 per cent195 An agreement on the delivery of 16 Mi-171S transport and 10 Mi-35 combat helicopters (from Russia to the Czech Republic) worth $US184 million was signed in September 2004 According to the Czech MoD the helicopter delivery from Russia was part of the repayment of its debts (a total of $US816 million) to the Czech Republic196 This region is no longer part of the current Russian market because countries in Central and Eastern Europe have joined the European Union and purchased US-built aircraft in the case of Poland andor have leased Swedish-built aircraft in the case of the Czech Republic and Hungary Furthermore Bulgaria has decided to upgrade its helicopter fleet with the assistance of the Israeli company Elbit Systems Limited and the US manufacturer Lockheed Martin Interestingly sales of Russian helicopters worldwide attract less attention than the sales of combat aircraft This is because such sales brings less money and as a result attract less publicity At the same time over the last decade the use of combat helicopters was very extensive For instance the Mi-17 and Mi-24 have been used in the war against terror in Afghanistan sometimes with US pilots at the controls The US Army reportedly uses the Mi-24 rather than the Apache for its most demanding missions because the Russian helicopter has better armour protection a rear compartment for troops197 its performance is more robust and it has more agile manoeuvrability than the Apache Undoubtedly this is the best promotion for both helicopters The list of the countries that have already purchased the Mi-17 and its derivatives includes Algeria China Colombia India Iran Mexico Nigeria Peru South Korea and newcomers such as Indonesia Malaysia and Pakistan As for the Mi-2435 the list is shorter but nevertheless it

0604 Eugene Kogan

20

includes China the Czech Republic India Nigeria Sri Lanka and newcomers such as Indonesia and Venezuela In addition KVZ has already signed deals to supply the government of South Korea with at least five Ansats as part of a state debt repayment198

Undoubtedly the Mil helicopter producers have outperformed the Kamov Helicopter Plant in terms of financial revenue and the geographic distribution worldwide However one should not underestimate the strength of the Kamov Helicopter Plant and its volume of sales For instance it has sold the Ka-31 airborne early warning (AEW) helicopter to India199 and the Ka-32 to Canada Spain Switzerland200 and South Korea201

6 Uncertain future and pitfalls ahead Valery Bezverkhny noted that `projects must be attractive to foreign partners We cannot be isolated in Russia any more even on military programmesacute The industryrsquos future is not in being a simple supplier to Western aerospace companies Instead Bezverkhny continues Òur core competence today is the design and development stage this is still in Russia because of our huge manufacturing historyhellipit will be key for future co-operationacute202 The design needs to be tailored to the countryrsquos requirement Current Russian requirements are not comparable to those of the former Soviet Union As a result a large number of manufacturing sites will have to be closed down despite fierce resistance from the regional governments This requires a very strong political will and a consistent implementation policy Otherwise the sector will remain as it is muddling through Undoubtedly the situation remains very precarious in particular for the Ilyushin Complex and Tupolev Joint Stock Company Their domestic sales have been and still are minimal and their future remains uncertain According to the US-based Teal Group forecast up to 2012 Russiarsquos share of the global fighter market will be kept at about 11 per cent However by about 2015 the Russian fourth-generation aircraft will be pushed to the side by either the F-35 or FA-18 The forecast for the Russian-built fifth-generation aircraft has been gloomy203 Data from CAST suggests that between 200 and 300 new Su-27 and Su-30 fighters could be exported in the next ten to fifteen years bringing in between $US5 billion to $US9 billion204 Experts of the US-based company Forecast International estimate Sukhoirsquos share of the current world market of manufacturers of military fighters at about 14 per cent In 2015 this share is to increase to 16 per cent Sukhoirsquos export share on the aviation world market including co-production and production under licence is currently 25 per cent205 It can also be suggested that RAC MIG export aviationrsquos share in the years to come is likely to increase Earlier obituaries have been premature RAC MIGrsquos venture into the commercial craft sector has taught the management a very valuable lesson namely that the development and manufacture of passenger aircraft is not the companyrsquos forte Instead RAC MIG needs to concentrate on design development manufacture and sales of military craft and the associated simulator systems Not least important will be the increasing share of Mil helicopter producers It is also evident that the Russian aviation companies will need to invest heavily in maintaining their infrastructure and keeping up an increased level of research and development The government will not support them financially According to Yuri Koptev head of the aerospace industry department within the Ministry of Industry and Energy without governmental support `we cannot count on remaining the worldrsquos third [largest] aircraft manufacturing centreacute206 According


21

to the development strategy of the aviation industry the funding for the design of the new generation of aviation technologies should be increased to $US16 billion from the overall budget of the Russian Federation The proposed funding should cover expenses for research and development for the design bureaus and the enterprises207 This is certainly wishful thinking but the reality of the last decade has highlighted the inability of the state to provide much-needed funds In addition Yuri Koptevrsquos statement should not be taken at face value It may apply and might appeal to the grievances of the domestic manufacturers but it has very little to do with reality Governmental support is also unlikely to materialise in the next two to three years The `promisesacute made by the government time and again have been unsubstantiated As a result it needs to be stressed that the aviation industry will have to look for a new market in addition to China and India and to continue to focus on export opportunities until the revival of the domestic market However even with the revival of domestic orders the aviation industryrsquos initial participation will remain minimal In the long term domestic orders may increase but again it is important to stress Russiarsquos requirements are no longer of the volume of those of the former Soviet Union However for many officials in the Russian government and the regional governors the prevalent philosophy of the Soviet times that they need to have a large air fleet and must remain the largest manufacturing centre still remains It will take a considerable time to change this philosophy Endnotes

1 Ànaliticheskaya Zapiska Perspektivy Grazhdanskoi Aviatsii v Rossiiacute (Ànalytical Note Prospects of the Civil Aviation in Russiaacute) Reitingovoye Agenstvo Ekspert RA (February-March 2002) 8 2(httpwwwngrueconomics2003-06-164_aviapromhtml) (httpnvongrunotes2004-11-268_letterhtml) (httpwwwgazetarulentashtml358465358465) Defense News 8 November 2004 9 See also (httpnvongrunotes2004-11-268_letterhtml) The same source also noted that an average annual wage of a worker in the aviation industry was 100000 roubles or about 8500 roubles per month See for comparison notes 5 19 and 29 The Russian aviation sector comprises 312 enterprises with a workforce of 520000 of which 29 per cent are state-owned and 33 per cent shareholding companies with state stakes the rest being denationalised firms without any state interest Flight International 12-18 August 2003 29 According to httpwwwizvestiarueconomicnews90022 the aviation sector employs 500000 workers while the volume of production is between $US6 billion and $US65 billion In comparison the European Union (EU) employs 400000 workers with a volume of production is about euro60 billion In other words ten times greater than in Russia and with 100000 fewer employees than in Russia Thus the Russian aviation industry is not efficient According to the latest Russian official figures in 2004 the industry comprised 293 enterprises including five major research centres the State Research Institute of Aviation Systems (GosNIIAS) Gromov Flight Research Institute (LII Gromova) the Central AeroHydrodynamic Research Institute (TsAGI) the Central Aero-Engines Institute (TsIAM) and the All-Russia Scientific Institute of Aviation Materials (VIAM) V N Rybakov `Rossiiskaya aviatsionnaya promyshlennostrsquo Itogi 2004 goda Osnovnye tseli i zadachi otrasli na 2005 godacute (`Russian aviation industry Conclusions for the year 2004 Main aims and assignments for the industry in 2005acute) in Energiya Promyshlennogo Rosta (Energy of Industrial Growth) Special Edition 5 (2005) 8 See also Materialy o sostoyanii aviatsionnoi promyshlennosti ndash Materials on the state of the aviation industry (hereafter cited as Materialy) Moscow 2005 14 3 Krasnaya Zvezda 5 July 2003 (httpwwwredstarru20040131_015_01html) For an earlier report see A V Sokolov `Sostoyanie i tendentsii razvitiya Rossiiskoi oboronnoi promyshlennostiacute (`State and trends in development of the Russian defence industryacute) in EKO 4 (2003) 120 No data are available for 2005

0604 Eugene Kogan

22

4 V N Rybakovrsquos article (`Rossiiskayaacute 8) states in clear terms that 122 enterprises are actually operational This implies that the authorrsquos assumption has been fairly accurate 5 (httpnvongrunotes2004-11-268_letterhtml) For above the average wages see notes 19 and 29 6 (httpwwwvpkruss ndash online on 28 June 2004) 7 (httpnvongruarmamament2004-04-026_chuykohtml) 8 Defense News 25 July 2005 24 9 Flight International 25 November-1 December 2003 24 10 (httpnvongrunotes2002-08-238_integrationhtml) According to other sources however aircraft sales accounted for about 70 per cent of Russiarsquos arms exports Janersquos Defence Weekly 21 November 2001 20 Defense News 3-9 December 2001 10 (httpnvongruarmament2001-12-141_taskhtml) Izvestia 18 December 2001 Aircraft sales accounted for 70 per cent of Russiarsquos arms sales in 2003 (httpnvongruarmament2004-01-301_2003html) Kommersant Vlast 2-8 February 2004 22-23 11 Krasnaya Zvezda 5 July 2003 According to Flight International the aviation industry accounted for 75 per cent of the defence industry exports in 2002 12-18 August 2003 29 Interavia (July-September 2003) 14 12 Aviation Week and Space Technology 23 February 2004 52 13 Defense News 3 October 2005 22 See also Voyenno-Promyshlennyy Kurrsquoer (hereafter VPK) 41 2-8 November 2005 14 Flight International 9-15 August 2005 28 According to Sergei Chemezov director-general of Rosoboronexport however aviationrsquos share fell (from 65 per cent) to about 30 percent to 32 per cent (httpwwwredstarru20051103_111_01html) See also (httpwwwkommersantrudochtmldocId=631437) 15 Defense News 3 October 2005 22 16 Aviation Week and Space Technology 6 May 2002 13 For instance Airbus invested $US15 million in long-term research with TsAGI Flight International 4-10 January 2005 21 17 (httpwwwredstarru20020608_064_01html) 18 Aviation Week and Space Technology 2229 August 2005 36 19 28 September 2002 For some members of Salyut see (httpwwwredstarru20031209_121_04html) See also (httpnvongruarmament2004-12-031_gorelovhtml) For Salyut income in 2002 see note 22 20 (httpwwwredstarru20030625_062_01html) For an earlier report see (httpwwwredstarru20030429_04nhtml) See also (httpwwwredstarru20030607_064_01html) For the Russian government officialsrsquo reaction to creation of Salyut and its development similar to that of Irkut Corporation see (httpwwwnvongru2003-08-151_korporationhtml) 21 Defense News 11-17 November 2002 42 See also note 19 22 (httpwwwcastrucommentsid=137) For an earlier report see (httpwwwredstarru20040417_043_01html) UMPO earned about $US325 million in defence revenue in 2002 Janersquos Defence Weekly 2 July 2003 21 Salyut earned $US3077 million in defence revenue in 2002 Defense News 21 July 2003 44 As a result it can be said that Saturn earned $US2743 million in defence revenue in 2002 23 (httpwwwcastrumainindexphpm=1ampd=161amplang=1) See also Aviation Week and Space Technology 10 November 2003 48 According to the authorrsquos calculation Salyut earned $US383 million in 2003 24(httpwwwkommersantrudochtml=docld=584099) (httpwwwredstarru20050616_063_01html) VPK 29 10-16 August 2005 25 Ibid 26 20-26 July 2005 Obozreniye MAKS-2005 (Observer MAKS-2005) 16 August 2005 38 For later reports see VPK 39 19-25 October 2005 Janersquos Defence Weekly 2 November 2005 16 26 (httpwwwcastruenglishpublicationsmakienko_trendshtml) For an earlier report see Defense News 5-11 November 2001 18 Lastochkin stated that the situation in the Russian civil engine-building has been `not just critical but overly criticalacute The problem has been and still is financing `We can develop such an engine but to perfect it we need hundreds of millions of dollarsacute Vedomosti 11 November 2004 In a later interview


23

Lastochkin reiterated his earlier statement that the state has not made serious investments in the engine sector (httpwwwredstarru20050204_022_01html) 27 (httpwwwredstarru20030607_064_01html) 28 For a complete article see Aviainform (Aviation Information) (August 2005) 10-12 29 For a complete article see (httpwwwredstarru20051015_105_03html) 30 (httpwwwdefensenewscomstoryphpF=1038534ampC=europe) See also Aviation Week and Space Technology 2229 August 2005 24 31 (httpwwwredstarru20050917_09nhtml) 32 For a complete article see (httpwwwredstarru20051029_104_01html) 33 (httpnvongruarmament2003-06-066_technicshtml) According to Walter F Ullrich the company included various companies in the avionics and related industries producing all types of aircraft devices airborne equipment and flight simulators `Flight simulation and simulator training in the Russian Federationacute in Military Simulation and Training (MSampT) Magazine 2 (2004) 12 See also VPK 33 7-13 September 2005 For details of the birth of the company see Military Review (BelaPan Information Company) 30 January 2001 Vremya Novostei 17 April 2001 34 (httpnvongruarmament2003-07-116_korotkohtml) 35 (httpwwwkommersantrudochtml=docld=584099) (httpwwwredstarru20050616_063_01html) Aerospace Equipment turnover in 2001 amounted to about $US270 million Vedomosti 27 August 2002 The company earned $US4889 million in defence revenue in 2003 VPK 29 10-16 August 2005 36 For a complete article see (httpwwwredstarru20040228_024_01html) See also Aviasalony Mira (World Air Show) 3 18 August 2005 In September 2004 the Russian President Vladimir Putin signed an Act creating a unified avionics company Avionika (not to be confused with Russian Avionics) based on an association of companies around the Technocomplex The new company will develop and manufacture navigation systems fire-control radars automatic pilots on-board computers flight-control systems and life-support systems Flight International 5-11 October 2004 27 For a complete list of enterprises see (httpwwwredstarru20050810_081_02html) See also VPK 33 7-13 September 2005 37 Izvestia 5 July 2002 38 For a complete and comprehensive article see (httpnvongruarmament2003-08-151_korporationhtml) For an earlier report see (httpwwwredstarru20020411_042_02html) 39 Ekspert 41 3-9 November 2003 29 40 For a complete and comprehensive article see (httpnvongruarmament2003-08-151_korporationhtml) For an earlier report see (httpwwwredstarru20020411_042_02html) 41 Flight International 9-15 March 2004 23 See also Janersquos Defence Weekly 10 March 2004 22 42 Flight International 9-15 March 2004 23 According to Internet sources (httpnvongruarmament2003-10-316_newshtml) Irkut approved a plan of its strategic development up to 2013 The civil side of the business will increase from 14 per cent in 2003 to 45 per cent by 2013 See also Ekspert 41 3-9 November 2003 29 43 (httpnvongruarmament2003-08-151_korporationhtml) For the Russian government officialrsquos reaction to the formation of Irkut see Defense News 8 September 2003 50 44 (httpwwwdefensenewscom - online on 11 July 2003) 45 Flight International 18-24 May 2004 35 In earlier reports it was noted that Irkut also owns 66 per cent of the related marketing firm Beta Air and holds 51 per cent of Russian Avionics Aviation Week and Space Technology 10 November 2003 48 Beriev owns another 21 per cent in Beta Air with the remainder spread among private shareholders Aviation Week and Space Technology 21 October 2002 63 According to Aviation Week and Space Technology Irkutrsquos stake in Beriev has increased to 542 per cent while 38 per cent stake is left with Holding Sukhoi 17 January 2005 320 46 Janersquos Defence Weekly 5 May 2004 19 Irkut raised $US127 million from floating 23 per cent of its shares on the Moscow Interbank Currency Exchange (MICEX) on 26 March 2004 Flight International 18-24 May 2004 35 According to Oleg Demchenko President of Yakovlev the companyrsquos net profit was 617 million roubles ($US198 million) in 2001 and 467 million roubles (about $US15 million) in 2000 Flight International 9-15 April 2002 20

0604 Eugene Kogan

24

In 2003 Yakovlev Design Bureau employed about 800 people and the company volume of sales was between $US5 million and $US15 million annually Ekspert 41 3-9 November 2003 20 47 (httpwwwgazetaru20040908oa_132873shtml) 48 Flight International 16-22 March 2004 18 18-24 May 2004 35 (httpnvongruarmament2004-05-286_newshtml) 49 Janersquos Defence Weekly 12 November 2003 22 See also Aviation Week and Space Technology 10 November 2003 48 50 5 April 2004 20 The remaining 133 per cent of Irkut belongs to an unknown group of people As late as 27 May 2005 httpwwwkommersantrudochtmldocId=587246 reported that the government stake in Irkut has been reduced from 147 per cent to about 13 per cent and transferred to the Holding Sukhoi 51 ConciseB2BAerospace (May 2002) 102 In December 2000 India awarded IAPO a $US33 billion contract for local assembly of 140 aircraft over 17 years at Hindustan Aeronautics Limited Flight International 2-8 July 2002 15 These listings refer to the previous yearrsquos earnings Thus the 2002 listing contains data from 2001 etc For clarity we refer to the year the figures relate to not the year of publication 52 11-17 November 2002 42 That is as far back as the Defense News goes with the annual ranking of the top one hundred defence companies including Russian companies 53 Ibid 28 June 2004 14 54 Ibid 25 July 2005 13 55 Ibid 10 May 2004 12 Janersquos Defence Weekly reiterated Defense News note that Irkut has a $US45 billion order book however it added that the company has also got a debt of $US512 million of which about 70 per cent is owed to Russiarsquos largest saving bank Sberbank Alexey Fedorov head of Irkut claims that `debt payments are firmly linked to fulfilment of the export ordersacute that enable the company to repay between $US100 million and $US150 million a year 6 October 2004 25 Defense News added that Irkut has outstanding orders worth $US39 billion 22 August 2005 22 56 Flight International 4-10 January 2005 21 See also Aviation Week and Space Technology 3 January 2005 40 57 Aviation Week and Space Technology 2229 August 2005 24 For earlier reports see Flight International 4-10 January 2005 21 Obozreniye MAKS-2005 16 August 2005 30 Under a plan approved by the Irkut board of directors on 14 October 2005 EADS will have to pay about $US70 million to acquire a 10 per cent stake in Irkut Defense News 24 October 2005 30 58 For the independent members of the board see Flight International 6-12 July 2004 24 For the names of the board of directors see httpwwwkommersantrudochtmldocId=587246 59 For a complete article including information related to the newly appointed board of directors see httpnvongru - online on 18 July 2003 60 Aviation Week and Space Technology 17 November 2003 32 61 Janersquos Defence Weekly 6 October 2004 23 Defense News (7 June 2004 14) noted that RAC MIG carried $US700 million in debt most of which originated from a $US230 million loan that the company received in 1997 from the Ministry of Finance For an earlier report see httpwwwvremyaru20031724 According to other sources the companyrsquos debts were estimated at $US1 billion in January 2004 Flight International 5-11 October 2004 27 According to Internet sources (httpwwwgazetaru20050203oa_147116shtml) RAC MIG still has a debt of $US600 million 62 Defense News 7 February 2005 11 (httpwwwkommersantrudochtmldocId=508820) It remains however unclear whether it has been a debt of nearly $US300 million andor of $US600 million This difference in figures is very substantial 63 (httpwwwcastrumainindexphpm=1ampd=150amplang=1) According to Interavia RAC MIG total sales in 2001 amounted to $US9773 million compared with a little more than $US100 million in 2000 and about $US200 million in 1999 Expectations for 2002 have been about $US1 billion (March 2002) 22 These expectations were well beyond the reality see note 65 64 (httpwwwvremyaru20031724) Defense News in its annual grading of the top one hundred defence companies noted that RAC MIG was ranked 96th and has reached $US267


25

million in defence revenue in 2002 21 July 2003 44 There has been no available data pertaining to the companyrsquos defence revenue in 2001 and earlier 65 Defense News 7 June 2004 14 66 25 July 2005 14 Aleksey Fedorov stated that the company earned about $US400 million in 2004 and has contracts worth $US12 billion However he also added that the company plans to make deliveries in 2005 worth $US250 million Defense News 7 February 2005 11 67 (httpwwwdefensenewscomstoryphpF=1038534ampC=europe) According to Internet sources (httpwwwngrueconomics2004-10-083_aviationhtml) RAC MIG has orders worth about $US14 billion See also (httpwwwredstarru20040611_062_01html) 68 (httpwwwredstarru2005101515_10nhtml) 69 (httpwwwcastrucommentsid=148) (httpwwwvremyaru20031724) According to httpwwwredstarru20040611_062_01html the value of property has been estimated at between $US3 billion to $US35 billion 70 (httpwwwredstarru20040611_062_01html) 71 Defense News 7 June 2004 14 This information is not accurate see note 73 72 Obozreniye MAKS-2005 16 August 2005 35 According to Internet sources (httpwwwfin-ruscomnewtopicsnews01855defaultasp) Holding Kamov was established in 2003 to promote and ensure the efficient sales of the Ka-32 and Ka-226 helicopters on the domestic and international markets Holding Kamov manages a 4946 per cent equity stake in the Kamov Helicopter Plant On 8 November 2005 AFK Sistema entered into an agreement with Oboronprom ZAO to sell 100 per cent of Holding Kamov for $US118 million See also Aviation Week and Space Technology 5 December 2005 42 It is not known who owns the remaining 154 per cent 73 ConciseB2B Aerospace (March 2002) 100 74 Aviainform (August 2005) 36 75 ConciseB2B Aerospace (March 2002) 100 76 (httpwwwcastruenglishpublicationsmakienko_trendshtml) 77 ConciseB2B Aerospace (March 2002) 101 78 Flight International 3-9 December 2002 28 79 Aviation Week and Space Technology 5 January 2004 13 See also (httpwwwizvinfoeconomicnews69289) According to the same Internet source the value of the contract has been estimated at $US10 million and not at $US3 million as cited in Aviation Week and Space Technology 13 80 Defense News 13 June 2005 18 Aviainform (August 2005) 36 VPK 35 21-27 September 2005 81 Obozreniye MAKS-2005 16 August 2005 40 82 For a complete article see (httpwwwcastrujournal2005sokol) See also Defense News 13 June 2005 18 Aviainform (August 2005) 36-37 Obozreniye MAKS-2005 16 August 2005 20 83 Defense News 13 June 2005 18 The source did not list who else may have been the shareholders of the plant For earlier information see Flight International 28 May-3 June 2002 10 3-9 December 2002 38 84 Interavia (March 2002) 23 85 (httpwwwitogiru - online on 14 October 2002) For instance in 2003 the annual wage of an employee at the plant was 129200 roubles (Materialy 15) or 10766 roubles per month 86 (httpwwwstranarustories0205202976265629html) 87 For a complete article see Aviation Week and Space Technology 17 November 2003 32 According to an earlier report the holding was supposed to have a 51 per cent stake in the Sukhoi Design Bureau and 745 per cent stake in two production plants KNAAPO and NAPO Defense News 3-9 December 2001 12 For confirmation of the holding stake in the design bureau and two production plants see Georg Mader À tale of triumph and tragedy Russian combat aircraft exports and industrial baseacute in Military Technology 8 (2005) 43 According to httpwwwkommersantrudochtmldocId=587246 the government stake of about 13 per cent (and no longer 147 per cent) was transferred to the holding This information was reiterated by Defense News (17 January 2005 3) Sukhoi Design Bureau is publicly owned - 50 per cent belonging to Holding Sukhoi 25 per cent to Oboronprom ZAO and 14 per cent recently acquired by OPK a managing company of Mezhdunarodnyyi Promyshlennyyi Bank (or International Industrial Bank) Aviation Week and Space

0604 Eugene Kogan

26

Technology 17 January 2005 321 As for the remaining 11 per cent no information was provided by the source 88 Kommersant Vlast 2 February 2004 24 A contract signed in 2003 to supply China with spare parts was valued at $US106 million In 2004 the value of the same contract has increased to $US200 million Janersquos Defence Weekly 16 June 2004 33 According to Internet sources (httpwwwcastrucommentsid=158) Sukhoirsquos earnings from after-sales support to Algeria and China (authorrsquos emphasis) was $US110 million in 2003 and was expected to be $US150 million in 2004 See also Kommersant Vlast 6 14 February 2005 37 VPK 29 10-16 August 2005 89 19 January 2005 30 See also Flight International 25-31 January 2005 25 Kommersant Vlast 6 14 February 2005 37 VPK reported that Sukhoi earned $US135 million in 2004 39 19-25 October 2005 See also (httpwwwredstarru20051201_121_01html) 90 For a complete article see Aviation Week and Space Technology 17 November 2003 32 91 11-17 November 2002 40 That is as far back as the Defense News goes with the annual ranking of the top one hundred defence companies including Russian companies 92 Defense News 21 July 2003 42 93 Ibid 18 June 2004 13 94 Ibid 25 July 2005 13 See also (httpwwwredstarru20051015_10nhtml) 95 (httpwwwredstarru20050204_02nhtml) 96 Aviation Week and Space Technology 21 July 2003 13 97 (httpwwwvestirunewshtmlid=61976ampsid=6) See also Flight International 14-20 September 2004 41 98 (httpnvongruarmament2005-01-216_newshtml) 99 (httpwwwkommersantrulenta-smallhtmlid=58399) 100 (httpwwwkommersantrulenta-smallhtmlid=61185) 101 Sales by the three Mil helicopter manufacturing plants jumped to about $US440 million in 2001 from $US150 million in 1999 Defense News 8-14 July 2002 28 Defense News did not disclose the financial information for the year 2000 and information pertained to the sales of the fourth plant 102 Flight International 12-18 August 2003 33 Defense News in its annual grading of the top one hundred defence companies noted that the Kazan Helicopter Plant was ranked 94th and reached $US2192 million in defence revenue in 2001 11-17 November 2002 42 KVZrsquos turnover in 2004 was $US193 million Aviation Week and Space Technology 5 December 2005 42 103 VPK 32 31 August-6 September 2005 In November 2005 Oboronprom ZAO took a stake in KVZ from the Republic of Tatarstan In return Tatarstan received a 151 per cent share of Oboronprom ZAO Aviation Week and Space Technology 5 December 2005 42 104 Ibid 17 January 2005 321 The source did not specify who owns the remaining 164 per cent 105 Defense News 8-14 July 2002 28 106 Ibid For more general information related to the financial difficulties of the Mil Helicopter Plant see (httpwwwredstarru20041211_123_01html) 107 (httpwwwredstarru20050416_044_01html) 108 Defense News 2 May 2005 16 109 Aviation Week and Space Technology 29 March 2004 68 Defense News 5 April 2004 3 110 Military Technology 6 (2005) 142 Unfortunately Military Technology has not provided any substantial economic data to support its claim As a result such information has to be taken with a pinch of salt 111 Defense News 8-14 July 2002 28 112 Materialy 15 113 VPK 32 31 August-6 September 2005 The source has not indicated who holds the rest of the shares 114 (httpwwwizvestiarucommentarticle2189981) 115 Aviation Week and Space Technology 10 November 2003 48 See also Flight International 9-15 March 2004 23 However according to Defense News (13 October 2003 38) and (httpnewsftcomservletContentServerpagename=FTcomStoryFTFullStoryampc=Story) Irkut employs either 16000 people andor 14000 people respectively According to Internet sources (httpnvongruarmament2003-08-151_korporationhtml) Irkut


27

employs more than 15500 people There is certainly a large difference between 1400016000 and 22000 and it remains unclear which figures are correct 116 Aviatsionno-kosmicheskiyi spravochnik 20032004 Promyshlennostrsquo i uslugi (Handbook of Aviation and Space 20032004 Industry and services) Moscow Aerosfera 2003 124 117 (httpwwwitogiru - online on 14 October 2002) A Sukhoi official stated that ÌAPO does not have a design school like Sukhoi The Sukhoi design bureau has 5000 people IAPO on the other hand has 150 people The Sukhoi design base has been created over generations In Irkutsk they have the hands but the brain is in Moscowacute (httpwwwdefensenewshisweek_1133234htmlamptty=thisweek) Holding Sukhoi employs 80 people (httpwwwkommersantruarchivearchive-materialhtmldocId=335648) (httpnvongruarmament2002-08-231_putinhtml) 118 Flight International 28 June-4 July 2005 40 119 (httpwwwvestirucommentshtmlid=33675) G Mader À taleacute 45 120 Materialy 19 121 (httpwwwredstarru20030828_081_06html) 122 (httpnvongruarmament2002-08-091_competitionhtml) According to Materialy in 2004 RAC MIG employed 12860 workers 19 123 (httpnvongruarmament2003-01-316_newshtml) 124 Aviatsionno-kosmicheskii spravochnik 121 125 Materialy 19 126 httpwwwredstarru20050204_022_01html which slightly contradicted httpwwwredstarru20050813_084_02html which noted that 5000 and not 7000 employees are engaged directly in the design and development of engines See also (httpwwwnpo-saturnrudefault) For a different figure for employees see Aviation Week and Space Technology 2 August 2004 44 127 Materialy 30 128 Aviation Week and Space Technology 10 November 2003 48 For an earlier report see (httpnvongruarmament2003-08-151_korporationhtml) 129 Aviation Week and Space Technology 6-12 May 2003 21 130 (httpnvongruarmament2004-07-096_newshtml) 131 Interavia (May-June 2003) 43 For an earlier report on the project see Flight International 18-24 February 2003 15 132 (httpwwwredstarru20050709_07nhtml) 133 For a complete article see Janersquos Defence Weekly 6 March 2002 12 The development costs for the MiG-AT are said to be about $US200 million Air Forces Monthly (January 2003) 16 As a result it can be said that the latest information namely that for the time being the RAC MIG invested its own money in the design and development of the MiG-AT trainer aircraft see (httpwwwredstarru20050430_04whtml) has been inaccurate 134 (httpnvongrunotes2003-06-068_vtshtml) 135 (httpwwwredstarru20051029_10whtml) 136 Flight International 23-29 March 2004 6 137 Defense News 29 August 2005 9 According to Yuri Lastochkin Director-General of Saturn Saturn and UMPO invested about 15 billion roubles in the engine design Obozreniye MAKS-2005 16 August 2005 16 This is certainly a considerable financial discrepancy 138 (httpwwwdefensenewscomstoryphpF=2332469ampC=europe) 139 Flight International 2-8 July 2002 15 See also note 38 140 Ibid 26 August-1 September 2003 20 141 Defense News 29 August 2005 9 See also Flight International 6-12 September 2005 23 According to unofficial information in 2005 Sukhoi design bureau received less than $US10 million for the T-50 project Interavia 681 (Autumn 2005) 13 142 For a complete article see Flight International 12-18 July 2005 20 143 Ibid 22-28 January 2002 14 For further information see also (httpwwwizvestiaruarmia2article886387) 144 Interavia (May 2002) 22 The same rate of 85 to 15 has been cited by the Internet source (httpnvongruarmament2002-05-316_korotkohtml) however the source also stated that the Ministry of Defence provided the funds See also Flight International 11-17 May 2004 20 According to other source Yakovlev said that it has invested company money about 40 per cent of the total production cost and that two airframes have been paid for (whether by the Ministry of Defence andor by the Air Force remains unclear) Yakovlev has

0604 Eugene Kogan

28

invested $US26 million in Yak-130 development while earning $US77 million from the sale of data to Italyrsquos Aermacchi Yakovlev warned however that its own resources will be insufficient to complete the research and development for the aircraft The MoD has reportedly given approval and funding for the production of ten Yak-130s (Flight International 9-15 April 2002 20) It needs to be stressed that investment of about 40 per cent of the total production cost including testing of four pre-production aircraft and the total cost of research and development has been estimated at about $US170 million and has been borne by Yakovlev while the remaining $US30 million have been provided either by the Ministry of Defence andor the Air Force The Yakovlev investment of $US26 million may cover the cost of construction and testing of two pre-production aircraft What about the cost of research and development There is a considerable funding gap between the $US26 million presented in April 2002 and the excess of $US100 million in April 2004 How can this gap be explained Did Yakovlev invest over $US74 million in just two years This is very unlikely There are too many questions and too few answers 145 Flight International 11-17 May 2004 20 Janersquos Defence Weekly 12 May 2004 6 146 Flight International 12-18 August 2003 33 See also (httpwwwredstarru20041127_11nhtml) 147 Air Forces Monthly (September 2002) 18 148 Flight International 12-18 October 2004 22 Janersquos Defence Weekly noted that Kazan Helicopters funded the design and development of a military version of the Ansat named Ansat-U 10 August 2005 13 149 Flight International 12-18 August 2003 34 150 (httpwwwvestirucommentshtmlid=32319) The helicopter was assembled at the Kumertau Aviation Production Organisation (also known as KumAPO) factory located in Orenburg Bashkorstan 151 Aviation Week and Space Technology 29 March 2004 68 Defense News 5 April 2004 3 The Russian government has cut all funding for development of the Ka-5052 attack helicopter from its 2005 budget Flight International 2-8 November 2004 6 Despite the government decision the Kamov design bureau decided to resume flight tests of the Ka-52 in July 2005 Ibid 5-11 July 2005 18 See also Andrey Zinchuk `ldquoBlack Sharksrdquo in Chechnyaacute in Military Technology 9 (2005) 138 152 (httpwwwizvestiaruarmia2article585948) See also (httpnvongruarmament2005-11-116_helicoptershtml) 153 Flight International 22-28 July 2003 17 According to Janersquos International Defence Review Russiarsquos Federal Development Programme for Civil Air Technology provides Mi-38 funding amounting to 825 billion roubles ($US275 million) through 2010 However just 572 million roubles (namely 7 per cent) will be provided by the state budget whereas 778 billion roubles should be invested by participants in the Mi-38 programme (including 39 million roubles or about 50 per cent of the joint investment to be paid by foreign participants) The Mi-38 programme has been an international venture since October 1994 run by the Euromil Consortium which included three equal partners the Mil Helicopter Plant in Moscow the Kazan Helicopter Plant and Eurocopter Although Eurocopter withdrew from Euromil it continued its participation in the programme (February 2004) 24 In January 2005 however an agreement between Eurocopter and its Russian partners to develop and manufacture Mi-38 was terminated Aviation Week and Space Technology 7 February 2005 62 Janersquos Defence Weekly 4 May 2005 18 Flight International 5-11 July 2005 24 154 (httpwwwizvestiaruarmia2article478949) (httpnvongruarmament2004-10-086_mi6html) Janersquos Defence Weekly 4 May 2005 18 155 (httpwwwcastrumainindexphpm=99ampd=473amplang=) See also (httpnvongruarmament2003-08-151_korporationhtml) Defense News 1 September 2003 14 (httpwwwdefensenewscomstoryphpF=2332469ampC=europe) Ekspert 41 3-9 November 2003 29 156 Janersquos Defence Weekly 20 April 2005 14 157 (httpwwwvectorsitenetavuav9html) 158 Defense News 6 June 2005 22 It appears that the companyrsquos directors approve funds required see Ibid 21 November 2005 22 159 Ibid 160 Airfinance Journal 262 (July-August 2003) 31


29

161 For a complete article see Aviation Week and Space Technology 30 June 2003 31-32 See also Defense News 19 July 2004 54 For an earlier report see Flight International 24-30 June 2003 8 162 Aviation Week and Space Technology 13 October 2003 28 Defense News 21 November 2005 22 163 Aviation Week and Space Technology 9 September 2002 21 In the follow-on report Aviation Week and Space Technology noted that an official at IAPO said that IAPO and EADS had basically reached agreement to set up a joint venture to provide after-sales support and other services for the Be-200 21 October 2002 63 164 Flight International 2-8 September 2003 21 See also Ibid 18-24 May 2004 35 Aviation Week and Space Technology 26 July 2004 21 According to Alexander Kuleshov the Be-200 programme director although the programme between the three partners has not been cancelled the cost of this approach means that the partners have decided to obtain Western certification with the Russian engines while continuing to study the BR715 idea Flight International 17-23 May 2005 37 165 Ibid 21 December 2004-3 January 2005 23 166 Defense News 22 August 2005 22 See also (httpwwwkommersantrudochtmldocId=602734) Flight International 23-29 August 2005 10 Janersquos Defence Weekly 24 August 2005 23 167 Aviation Week and Space Technology 5 December 2005 15 For information on Beta Air see note 45 168 13 October 2003 38 169 (httpwwwdefensenewscomstoryphpF=2918559ampC=europe) 170 Flight International 24-30 June 2003 8 171 For a complete article see Aviation Week and Space Technology 30 June 2003 30-31 See also Walter F Ullrich `Flightacute 10 172 For a complete article see Flight International 16-22 September 2003 31 173 (httpnvongruarmament2004-03-126_newshtml) See also Asian Defence Journal 3 (2005) 54 174 Aviation Week and Space Technology 2 August 2004 44 For an earlier report see (httpwwwpowerjetaeroid=25ampselt=7) See also Artem Fetisov `Tyaga na perspektivuacute (`Drawing on prospectacute) in Aviatransportnoye Obozreniye (Air Transport Observer) (July-August 2005) 39 (httpwwwredstarru20051029_104_01html) 175 Flight International 1-7 November 2005 62 176 For a complete article see (httpwwwasd-networkcompress_detail_BaspID=5511) See also Flight International 25-31 October 2005 12 1-7 November 2005 62 177 For a complete article see Defense News 27 June 2005 25 See also Military Technology 7 (2005) 101 178 (httpwwwdefensenewscomstoryphpF=1038534ampC=europe) 179 For a complete article see (httpwwwdefensenewscomstoryphpF=1045679ampC=europe) See also Defense News 21 November 2005 22 180 Interavia 681 (Autumn 2005) 15 See also notes 162 and 163 181 For a complete article see Aviation Week and Space Technology 19 September 2005 55 182 Flight International 25-31 May 2004 15 This `Cope Indiaacute exercise was staged in India and no less importantly the Su-30MK that participated was less potent than the latest version of the Su-30MKI See also (httpwwwstranarustories0201162353241125html) Alexander Mozgovoi `Nebo na zashchite moryaacute( `Sky on the defence of seaacute) in Military Parade (July-August 2005) 24-25 According to Lieutenant Colonel Paul (Biff) Huffman 64th Aggressor Squadron commander the Cope India experience `was certainly a little eye-opening for the whole [USAF]acute Huffman continued `We saw there are some very capable countries out there and some very capable hardwareacute Aviation Week and Space Technology 31 October 2005 50 In an earlier article USAF and aerospace industry officials noted that the Russian-built Su-30MK the high-performance fighter being exported to China and India consistently beat the F-15C in classified simulations For a complete article see Aviation Week and Space Technology 27 May 2002 47 183 Janersquos Defence Weekly 13 July 2005 4 184 For a complete article see Aviation Week and Space Technology 25 July 2005 28 See also Defense News 26 September 2005 14

0604 Eugene Kogan

30

185 (httpwwwdefensenewscomstoryphpF=1421359hellip) 186 (httpwwwdefensenewscomstoryphpF=1423330hellip) 187 Flight International 1-7 March 2005 6 For an early report see Janersquos Defence Weekly 1 December 2004 10 188 14 December 2005 17 For an early report see Ibid 7 December 2005 7 189 (httpwwwredstarru20051115_11nhtml) 190 The 558th ARZ main task is to upgrade the MiG-29 and Su-27 of the Belarus Air and Air Defence Forces Air Forces Monthly (March 2003) 30 The source however has not indicated the cost of the upgrade 191 Defense News 10 October 2005 18 192 For a complete article see Janersquos Defence Weekly 14 December 2005 12 193 Ibid 3 December 2003 14 At the end of 2003 ndash the latest date for which figures have been available ndash Russia owed Slovakia $US109 million The debt has since been reduced after Russia agreed to upgrade Slovakiarsquos MiG-29s Flight International 28 June-4 July 2005 19 194 For a complete article see Air Forces Monthly (August 2004) 9 195 Flight International 21-27 June 2005 38 See also VPK 35 21-27 September 2005 196 Defense News 25 April 2005 26 Janersquos Defence Weekly 13 July 2005 14 Janersquos International Defence Review (October 2005) 20 197 Asia-Pacific Defence Reporter (November 2004) 49 198 Flight International 12-18 October 2004 22 Asia-Pacific Defence Reporter (November 2004) 49 Flight International 12-18 April 2005 22 199 Janersquos International Defence Review (October 2004) 24 200 Flight International 22-28 February 2005 22 201 Ibid 5-11 July 2005 34 202 Ibid 25 November-1 December 2003 24 203 Ekspert 16-22 February 2004 21 204 Flight International 21 December 2004-3 January 2005 25 205 (httpwwwredstarru20051015_10nhtml) 206 Defense News 8 November 2004 9 207 Materialy 24

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31

Appendix Profile of the Current Aviation Industry Heads Vladimir Barkovsky prior to his appointment as First Deputy Director-General of RAC MIG in 1999 worked at AMIC Sukhoi208 He is currently head of the MIG Engineering Centre Valery Bezverkhny regarded as a talented manager was closely involved in the Irkut Corporationrsquos share offering in 2004209 He was born in 1959 in Ukraine Sergei Bodrunov has been Director-General of the St Petersburg-based Aerospace Equipment since 1999 Boris Bregman was born in 1949 he graduated from the Kazan Aviation Institute and after graduation was sent to KNAAPO At KNAAPO he was head of shop head of the production division and deputy Director-General for Economic and Commercial Issues In 2002 he was appointed First Deputy Director-General of Holding Sukhoi and kept his position as deputy Director-General of KNAAPO On 28 June 2003 he was appointed Chairman of the Board of Directors of the Holding Sukhoi210

Oleg Demchenko was born in 1944 and graduated from the Kuybyshev Aviation Institute Until 1981 he worked on the enterprises of the Ministry of Aviation Industry where he began his career as shop master and ended up as Head of Production Between 1981 and 1992 he headed the Main Directorates of the ministry From 1994 he was Director-General of the Yakovlev Joint Stock Company In 2003 he was appointed as a member of the Board of Directors of the Irkut Corporation and in 2004 became chairman of the Board of Directors of Irkut211

Givi Djandjgava was born in 1940 graduated from the Moscow Energy Institute and began his career as an engineer at the Ramenskoye instrument-building design bureau (also known as RPKB) He was appointed Director-General of Ramenskoye (when exactly remains unknown) and since 1997 has been president of Technocomplex212

Yuri Eliseyev was born in 1951 graduated from the renowned Moscow Bauman High-Technical College and was appointed technical director of Salyut in 1994 Since 1997 he has been Director-General He is one of a new generation of director-generals who understands that the enterprise needs to keep its highly-qualified workforce steadily improve scientific-technical potential and maintain its technological base as well as conducting research and development and experimental work and purchasing the necessary equipment213

Alexey Fedorov was born in 1952 graduated from the Irkutsk Institute of Technology and received his Master of Business Administration (MBA) from Oklahoma State University Between 1974 and 1989 he worked as a designer in the Irkutsk Aviation Production Organisation (IAPO) In 1989 he was appointed Chief Engineer and in 1993 Director-General of the plant In December 1996 he was appointed Director-General of the Aviation Military-Industrial Complex (AVPK) Sukhoi Since August 1998 he has been Director-General of IAPO which has meantime been renamed and restructured as Irkut Corporation214

Yuri Lastochkin has been Director-General of Saturn since 2001


32

Denis Manturov was born in 1969 and graduated from Moscow University Between 2000 and 2002 he was a doctoral student at the Moscow Aviation Institute Between 1998 and 2000 he was deputy Director-General at the Ulan-Ude Aviation Plant from 2000 to 2001 he was commercial director of the MVZ and from 2001 to 2003 was deputy chairman of the State Investment Corporation In 2003 he was appointed Director-General of the state-owned company Oboronprom ZAO215

Andrei Shibitov was born in 1961 graduated from the Kharkov Aviation Institute and returned to the Rostov-on-Don based Rostvertol Plant where he began his career as an engineer-designer He then became Deputy General Designer Director-General of the Engineering Company Special Helicopter Programmes Director-General of the External Economic Relations Deputy Director-General for Marketing and Sales and finally in early December 2004 he was appointed Director-General of the Moscow-based Mil Helicopter Plant216

Sergei Tsivilev was one of a handful of top managers who moved to RAC MIG from Irkut following Alexey Fedorov Irkutrsquos president who was appointed Director-General of RAC MIG in October 2004217 He was Senior Vice-President for Economy and Finance at Irkut prior to his appointment as First Deputy Director-General of RAC MIG218

208 St Petersburg Times 25 December 2001 209 Aviation Week and Space Technology 14 February 2005 46 210 (httpnvongru ndash online on 18 July 2003) 211 (httpwwwkommersantrudochtmldocId=587246) 212 Krasnaya Zvezda 23 November 2001 For a similar account with certain changes see (httpwwwredstarru20050810_081_02html) 213 Krasnaya Zvezda 28 September 2002 214 For a complete article see (httpwwwkommersantrudochtmldocId=508820) See also Flight International 18-24 May 2004 35 215 (httpwwwredstarru20050212_024_02html) 216 (httpwwwredstarru20041211_123_01html) Defense News 3 January 2005 8 (httpwwwredstarru20050416_044_01html) 217 Aviation Week and Space Technology 4 July 2005 52 218 (httpwwwkommersantrudochtmldocId=587246)

Want to Know More hellip See Materialy o sostoyanii aviatsionnoi promyshlennosti Moscow 2005 Voyenno-Promyshlenny Kurer weekly (in Russian) Defense News Weekly Flight International (in English)

Disclaimer

The views expressed are those of the Author and not necessarily those of the

UK Ministry of Defence

ISBN 1-905058-54-3

Published By

Defence Academy of the United Kingdom

Conflict Studies Research Centre Defence Academy of the UK Watchfield Telephone (44) 1793 788856 Swindon Fax (44) 1793 788841 SN6 8TS Email csrcdamodukEngland httpwwwdamodukcsrc

ISBN 1-905058-54-3

Introduction 1

Introduction


Eugene Kogan

Key Points

Exactly what has the management of the aviation industry done to maintain the workforce and to keep the enterprises running For major aviation companies such as Irkut Corporation RAC MIG Holding Sukhoi and its associated enterprises Mil Helicopter Plant with its associated enterprises export of military craft and helicopters was and still is the prime strategy of survival The domestic market was and still is in very bad financial shape and government promises to provide funds (via the Ministry of Defence andor the Air Force Command) have not as yet materialised As a result any figures on research and development spending in the aviation sector need to be looked at very carefully Very often they reflect the wishes of the government and the defence industry officials but they do not correspond to the bleak realities There is also an inherent disparity between official statements that state defence orders have been increasing over the last two to three years and the reality on the ground Orders backed up by real finance and not merely promised funding for a limited number of new aircraft and a slightly larger number of new helicopters may appear on the horizon by the end of 2007 to early 2008 andor later As for fifth - generation aircraft the story is a little different There is a clear understanding by Sukhoi and others that the government still doesnrsquot have the money to support the project Nevertheless the decision has been made that the project goes ahead with andor without government support There is however an additional element of uncertainty namely whether European Union member states such as for instance France Germany and possibly Italy may join the programme It is also unclear whether India will go along with it It appears that the Peoplersquos Republic of China is not interested In the engine sector the situation has stabilised and several large corporations such as Salyut Saturn and UMPO have emerged As for navigation and on - board equipment Technocomplex appears to be the leading corporation The St Petersburg based electronics firm ZAO Aerokosmicheskoye Oborudovaniye is as important as Technocomplex and it seems








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Conflict Studies Research Centre - ETH Z Profiles 3 1.1 From the Irkutsk Aviation Production...

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